Worker productivity sees first back-to-back drop since 2006

Market Watch – by Jeffry Bartash

WASHINGTON (MarketWatch) — American employees and companies evidently are not as productive at work as they used to be.

U.S. productivity fell by a 1.9% annual pace in the first quarter, resulting in the first back-to-back drop since 2006, the Labor Department reported Wednesday. Over the past four quarters productivity has risen at a scant 0.6% rate, just one-fourth the nation’s average since the end of World War Two.  

The decline in productivity stemmed from companies hiring more workers and employees working longer hours even as the production of goods and services declined.

Hours worked rose 1.7% in the first quarter, while output of goods and services fell 0.2%, the government said.

Lower output may have been partly the result of an unusually harsh winter disrupting production in early 2015 and a surging dollar that curtailed U.S. exports. The economy grew just 0.2% in the first quarter, preliminary data show, and that number could turn negative when the government revises it later this month.

Productivity often falls when hiring ramps up as it’s done over the past year, especially if new workers take a while to train. Yet productivity has been unusually weak throughout the nearly six-year-old recovery and there’s little sign it’s about to return to its historical norm of 2.2% annual growth.

“With the information & technology sector adding less to productivity than in the late 90’s/early 00’s, and recent hiring tilted towards sectors with typically low productivity, that is unfortunately a trend that could continue to limit the speed limit of the US economy going forwards,” said Andrew Grantham of CIBC World Markets in a note to clients.

A prolonged bout of low productivity is a bad sign for an economy, resulting in lower corporate profits, smaller dividends for shareholders and meager wage increases for workers. Although economists expect productivity to resume growing this year, they do not see a breakout any time soon.

Unit-labor costs, meanwhile, jumped by a 5% annual rate to mark the biggest gain in a year, though they are only up 1.1% compared to a year earlier. Unit-labor costs reflect how much it costs a business to produce one unit of output, such as a ton of steel or a crate of potato chips.

The good news is that more Americans are working and they are working longer hours, giving them a bit more take-home pay. There are also growing signs that wages are starting to rise as the unemployment rate falls toward 5% and companies have to pay more to attract talented workers.

In the first quarter hourly compensation for all workers rose 3.1%, and it rose an even stronger 6.2% adjusted for inflation, reflecting the big drop in energy costs. Real or inflation-adjusted compensation is up just 1.8% from a year earlier, however.

The decline in productivity in the 2014 fourth quarter was revised slightly to 2.1%.

http://www.marketwatch.com/story/worker-productivity-sees-first-back-to-back-drop-since-2006-2015-05-06

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