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Second Quarter Shows No Improvement in the Declining Productivity of US

The United States nonfarm productivity decreased in the first quarter thanks to the harsh winter which pushes labor-related production costs to increase by the quickest pace in a year.

Productivity declined at an annual rate of 1.9 percent after dropping at a revised 2.1 pace in the fourth quarter, said the Labor Department on Wednesday. That was the first back-to-back fall in productivity since 2006.

U.S. productivity falls for second straight quarter Photo Credit: Google Images

U.S. productivity falls for second straight quarter
Photo Credit: Google Images

Polled by Reuters, the Economists had forecast the productivity, that measures hourly output per worker, decreasing at the rate of 1.8 percent after declining at a prior reported rate of 2.2 percent in the last three months of 2014.

The drop in productivity that mirrored an abrupt slowdown in economic growth in the first quarter, is likely to be temporary. Yet, the trend remains weak as the productivity increased to 0.6 percent from the previous year.

Cold weather, in combination with a strong dollar, port disruptions and deep spending cuts by energy companies led to the low first-quarter economic growth to 0.2 percent.

However, a jump in the trade deficit in March points that the economy actually contracted in the first three months of the year post increasing at a 2.2 percent pace in the fourth quarter.

Despite the weather disruptions, workers put in more hours in the first quarter. Hours increased at a 1.7 percent rate.

Unit labor costs, the price of labor per single unit of output, increased at a 4.2 percent rate in the fourth quarter.

They rose 1.1 percent compared to the first quarter of 2014, a sign that wage inflation remains benign.

Compensation per hour jumped to 3.1 percent rate in the first quarter, which is also the fastest pace since the first quarter of 2014. A report last week showed a considerable increase in the labor costs in the first quarter, hence pointing towards wage inflation.

The steadily rising labor costs against the backdrop of weak productivity could squeeze corporate profits.

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Enozia Vakil is an online entrepreneur, writer, editor and an avid reader. She has been associated with some of the best names in both online and print media, and holds a degree in Alternative Medicine.