- Anthony Karydakis, chief economic strategist at Miller Tabak
U.S. nonfarm productivity rose more strongly than expected in the three month through June, while a dramatic decline in unit labour costs indicated still tame wage pressures, providing the Federal Reserve with room to keep interest rates low for a while. According to the official data of the Labor Department on Friday, productivity gained as much as 2.5% annual rate following a 4.5% contraction in the first three-month period, the fastest drop since the final quarter of 1981. In contrast, economists had projected productivity to increase at a 1.5%rate in the second quarter. Productivity, which measures hourly output per worker, was previously registered to have fallen at a 3.2 % rate in the January-March period. The rebound in productivity follows a bounce back in the nation's GDP in the second quarter, when the economy expanded at a 4% pace after shrinking 2.1% in the first quarter. The trend in productivity, however, remains sluggish. Compared to the same period last year, productivity increased 1.2%. Unit labour costs, the price of labour per single unit of output, ticked up at a 0.6% rate after advancing at a revised 11.8% rate, which was the quickest since the fourth quarter of 2012. The Fed is closely monitoring wage growth as it ponders the future monetary policy. While the tame unit labour costs suggest the U.S. central bank should be in no hurry to begin lifting its benchmark interest rate, other measures such as income and the employment cost index point to some firming of wage pressures.
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