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US productivity flat in first quarter, while labour costs up

Last Updated Jun 5, 2017 at 8:00 am MST

In this Thursday, June 1, 2017, photo, a builder works on the roof of a home under construction in Jackson Township, Butler County, Pa. On Monday, June 5, 2017, the Labor Department issues revised data on productivity in the first quarter. (AP Photo/Keith Srakocic)

WASHINGTON – The productivity of American workers was flat in the first three months of this year, while labour costs rose at the fastest pace since the second quarter of last year.

Productivity growth was zero in the January-March quarter after rising at a 1.8 per cent annual rate in the fourth quarter, the Labor Department reported Monday. It was the weakest performance since productivity had fallen at a 0.1 per cent rate in the second quarter of last year but an improvement from an initial reading of a 0.6 per cent decline.

Productivity, the amount of output per hour of work, has been weak through most of the current recovery. Many analysts believe finding a way to boost productivity growth is the biggest economic challenge facing the country, but there is no consensus on the cause of the slowdown.

Labour costs rose at a 2.2 per cent rate after having fallen at a 4.6 per cent rate in the fourth quarter. It was the fastest gain since April-June of last year.

The revision in first quarter productivity had been expected because of the revision to first quarter gross domestic product, the economy’s total output of goods and services. The government initially reported that GDP had risen by a tepid 0.7 per cent rate in the January-March perio. But that was revised to show a slightly better reading of a 1.2 per cent gain. The boost in output led to the better reading for productivity.

Since 2007, productivity increases have averaged just 1.2 per cent. That’s less than half the 2.6 per cent average annual gains turned in from 2000 to 2007, when the country was benefiting from increased efficiency from greater integration of computers and the internet into the workplace.

Rising productivity means increased output for each hour of work, which allows employers to boost wages without triggering higher inflation.

The effort to boost productivity back to the levels since before the Great Recession will likely be a key factor in determining whether President Donald Trump will achieve his goal of boosting overall growth from the weak 2.1 per cent average seen since the recession. The economy’s potential for growth is a combination of increases in the labour force and growth in productivity.

During the campaign, Trump pledged to double growth to 4 per cent or better. Trump last month released a budget that projects faster economic grwoth will produce $2 trillion in deficit reduction over the next decade but that forecasts expects growth to rise over the next few years to a sustained pace of 3 per cent annual gains.