BUSINESS

US productivity increases at 2 per cent rate in second quarter while labour costs up slightly

11/06/2014 08:48 EST | Updated 01/06/2015 05:59 EST
WASHINGTON - U.S. workers' productivity increased in the July-September period at a slower pace than in the previous quarter. Labor costs accelerated but still remained at an extremely low level.

Productivity, the amount of output per hour of work, rose at a 2 per cent annual rate in the third quarter after a 2.9 per cent gain in the second quarter, the Labor Department reported Thursday.

Labour costs rose at a slight 0.3 per cent rate in the third quarter after having fallen at a 0.5 per cent rate in the second quarter.

Greater productivity is the key factor determining rising living standards. It enables companies to pay their workers more without having to increase prices. Even with the small acceleration in labour costs, they remain far below levels that would raise concerns about inflation.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said that the main message from the report was that productivity is accelerating while labour costs remain under control.

He said that productivity numbers have shown gains above 2 per cent in four of the past five quarters with the first quarter's sharp decline a result of the severe winter weather that sent the economy into reverse in the first three months of this year.

Discounting that drop, Shepherson said, the economy is seeing "a notable pick-up in productivity growth."

The overall economy, as measured by the gross domestic product, grew at an annual rate of 3.5 per cent in the third quarter, a solid performance that followed a 4.6 per cent surge in the second quarter.

The GDP is the economy's total output of goods and services. Since output growth slowed in the third quarter, productivity slowed as well.

Over the past year, labour costs have risen 2.4 per cent, a modest increase that is below the long-run average of 2.8 per cent annual gains. That suggests that wages and salaries are not rising fast enough to spur inflation.

The Federal Reserve keeps a close watch on productivity and labour costs for any signs that inflation may be accelerating.

Over the past year, productivity has increased by a modest 0.9 per cent, well below the long-run average of 2.2 per cent.

Productivity surged in 2009 and 2010 in the aftermath of the Great Recession. Companies cut jobs faster than their output was falling. driving productivity higher as fewer workers did more. Productivity grew 3.2 per cent in 2009 and 3.3 per cent in 2010.

But in the past three years, productivity growth has averaged just 1 per cent per year as hiring has picked up. Economists are uncertain whether this is just a temporary slowdown or a new normal for the economy.