WASHINGTON (MarketWatch) — American firms and employees boosted their productivity in the third quarter for the first time in 2016, but the longer-term trend is still a poor one that bodes ill for the U.S. economy.
Productivity jumped at an annual 3.1% pace in the three months covering July through September. That’s the first gain since the fall of 2015 and largest advance in two years, the government said Thursday. Figures are seasonally adjusted.
The improvement was triggered by a big jump in the amount of goods and services produced even though the amount of time workers put in on the job barely rose.
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Output of goods and services — the stuff workers make or provide — shot up 3.4% in the third quarter, the Labor Department said Thursday.
The amount of time employees worked, however, only edged up 0.3%.
Despite the third-quarter advance, productivity has grown less than half its historical norm during the more than seven-year-old economic recovery and there’s no sign of acceleration.
The low level of productivity, unless reversed, could doom the U.S. to slow growth for years and a more cramped standard of living. Rising productivity is the key to a more vibrant economy: it allows companies to earn bigger profits and invest more while paying higher salaries to employees.
Unit-labor costs, meanwhile, grew much more slowly in the third quarter: 0.3% vs. a revised 3.9% advance in the spring.
Unit-labor costs have risen a mild 2.3% over the past year, however, and they have tapered off since early 2015. Unit-labor costs reflect how much it costs a business to produce one unit of output, such as a ton of coal or a bushel of wheat.
Hourly compensation for workers — wages and benefits — increased at a 3.4% annual clip in the third quarter. But the gain for workers was just half as fast, 1.7%, when inflation is taken into account.
Productivity has barely risen 1% annually since 2007, compared to a 2.6% rate from 2000-2007 or 2.2% going back to the end of World War Two. Low productivity has bedeviled the U.S. and many other leading economies for the past decade and there’s been no progress in trying to reverse the trend.
