US Productivity Jumps By Most Since 2020, Blunting Labor Costs

US labor productivity logged its biggest increase in the second quarter in nearly three years, helping to offset rising labor costs.

(Bloomberg) — US labor productivity logged its biggest increase in the second quarter in nearly three years, helping to offset rising labor costs.

Productivity, or nonfarm business employee output per hour, rose at a 3.7% annual rate in the second quarter after registering a decline in the first three months of the year, according to figures out Thursday from the Bureau of Labor Statistics. The median estimate in a Bloomberg survey of economists had called for a 2.2% rise.

Unit labor costs, or what a business pays employees to produce one unit of output, rose at a 1.6% rate after surging 3.3% in the prior period.

Higher productivity helps curb the potential inflationary impact of higher wages and other costs, which is why firms often adopt new technologies or invest in software and equipment to improve efficiency. The quarterly figures are volatile, but if the latest advance is sustained, it could help reduce inflation.

Thursday’s report showed hourly compensation jumped 5.5%. Adjusted for inflation, it rose 2.7%, marking the first increase in almost a year. The rise was boosted by the first drop in hours worked since 2020, which was concentrated in manufacturing. Nonfarm business output rose 2.4%.

Other recent reports have suggested some easing in labor-cost pressures. The employment cost index, a broad gauge of wages and benefits, rose in the second quarter at the slowest pace since 2021. Meanwhile, GDP — a key gauge of economic activity — unexpectedly accelerated in the April-to-June period on the back of resilient consumer spending and a pickup in business investment.

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