WASHINGTON: US worker productivity increased at its fastest pace in more than four years in the first quarter, depressing labour costs and suggesting inflation could remain benign for a while.
The report from the Labour Department on Thursday came on the heels of data this week showing moderate wage growth in the first quarter and a key inflation measure posting its smallest annual gain in 14 months in March.
The Federal Reserve on Wednesday held interest rates steady and signalled little desire to adjust monetary policy anytime soon. Fed Chairman Jerome Powell told reporters the moderation in price pressures was likely due to transient factors, and predicted inflation would rise back to the US central bank’s 2 per cent target.
“The rebound in productivity is restraining labour costs and keeping inflation in check,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “The improved production of workers more than offset the moderate gain in wages.”
Nonfarm productivity, which measures hourly output per worker, increased at a 3.6 per cent annualised rate in the last quarter. That was the strongest pace since the third quarter of 2014. Data for the fourth quarter was revised down to show productivity rising at a pace of 1.3 per cent instead of the previously reported 1.9 per cent rate.
Economists polled by Reuters had forecast first-quarter productivity would advance at a 2.2 per cent rate. The acceleration in productivity was flagged by a surge in gross domestic product growth in the January-March period. The economy grew at a 3.2 per cent rate in the first three months of the year after expanding at a 2.2 per cent pace in the fourth quarter.
Some economists believed the surge in productivity was partly driven by a 35-day partial shutdown of the federal government, which led to hours worked in the first quarter rising at their slowest pace in more than three years.
As such, they continued to estimate the speed at which the economy can grow over a long period without igniting inflation between 1.7 per cent and 2.0 per cent.
“One quarter does not make a trend, and we do not expect productivity growth to be sustained at the current level, but a gradual shift towards 1.5-2.0 per cent seems plausible to us,” said Blerina Uruci, an economist at Barclays in Washington.
Compared to the first quarter of 2018, productivity increased at a rate of 2.4 per cent, the best performance since the third quarter of 2010. The strong pace of productivity suppressed growth in labour costs, a boost for corporate profits.
Unit labour costs, the price of labour per single unit of output, fell at a 0.9 per cent rate in the first quarter after increasing at a 2.5 per cent rate in the prior quarter. Compared to the first quarter of 2018, labour costs grew at a 0.1 per cent rate, the weakest pace since the fourth quarter of 2013. — Reuters
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