Revised Q1 productivity unchanged, as expected

Productivity has increased at an average annual rate of 0.6 percent over the last five years, below its long-term rate of 2.1 percent from 1947 to 2016, indicating that the economy’s potential rate of growth has declined.

That suggests the Trump administration could struggle to achieve its 3 percent annual gross domestic product growth target. The economy grew at a 1.2 percent pace in the first quarter. It grew 1.6 percent in 2016 and annual GDP growth has not exceeded 2.6 percent since the 2007-09 recession ended.

Economists blame low capital expenditure, which they say has resulted in a sharp drop in the capital-to-labor ratio, for the weakness in productivity. There are also perceptions that productivity is being inaccurately measured, especially on the information technology side.

Companies have been hiring more workers to maintain output.

First-quarter output per worker was revised up to a 1.7 percent growth rate from the previously reported 1.0 percent pace.

The increase in output came as total hours worked increased at an upwardly revised 1.7 percent rate. Hours worked were previously reported to have risen at a 1.6 percent rate in the first quarter.

Unit labor costs, the price of labor per single unit of output, increased at a 2.2 percent pace in the first quarter instead of the previously reported 3.0 percent rate.

Compared to the first quarter of 2016, unit labor costs rose at a 1.1 percent rate. Fourth-quarter unit labor costs were revised down to show them declining at a 4.6 percent rate from the previously reported 1.3 percent pace of increase.

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Wage growth remains sluggish despite the unemployment rate being at a 16-year low of 4.3 percent.