"Despite subdued wage growth, low productivity growth means that companies still face significant labor costs for producing an extra unit of output".
- Blerina Uruci, Barclays
The US nonfarm productivity dropped less sharply than previously was forecasted in the first quarter, however labour-related costs still are high since companies employed more workers in order to boost output. According, to the Labour Department, productivity which measures hourly output per worker, contracted at an annualized rate of 0.6% versus the 1.0% pace reported in May. It is worth to point out, that revision is in line with economists' expectations. The unit labour costs also jumped to 4.5% versus an expected unchanged at 4.1%. Meanwhile, weak productivity partially explains the divergence between the economy's performance at the beginning of the year and relatively strong labour market, marked by average monthly job gains of 196,000 in the first quarter. In the meantime, productivity has only advanced in two of the last six quarters and it went up at a 0.7% rate compared to the first quarter of 2015.
By the way, some economists tried to explain weak productivity referring to the changing industry mix, which has experienced a shift from manufacturing and energy toward the production of services. Productivity accelerated at an annual rate of less than 1% in each of the last five years, suggesting the economy's potential rate of growth has losing momentum.
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