US Productivity Declines As Labor Costs Climb

Date: August 10, 2016 Last Edit: August 11, 2016

Productivity Fell 0.5% During Q2, While Labor Costs Rose 2%

The latest Labor Department data on worker productivity and costs shows that during Q2 2016, US worker productivity declined at an annualized rate of 0.5% from Q1 2016. The Wall Street Journal notes that the decline in productivity has now been the longest since 1979, with Q2 productivity down 0.4% from 12 months earlier, the first annual productivity decline in three years and only the sixth year-to-year productivity decline since 1982. Economists the Wall Street Journal surveyed had expected a more positive reading for productivity, averaging projections of a 0.4% increase in Q2 productivity. Although productivity and labor costs data can fluctuate, over the course of multiple quarters, productivity growth is seen as a key indicator of how quickly worker pay and economic output will be able to grow without boosting inflation. Stronger productivity generally translates into rising wages that are adjusted for inflation along with momentum-boosting economic growth. However, as Barclays economist Blerina Uruçi explained, “Since the recession the underlying trend in productivity growth has been particularly subdued and at historical low levels.” At the same time that worker productivity declined, the AP reports that the latest Labor Department figures also showed that labor costs rose significantly during the quarter, up 2% during Q2 following a 0.2% decline during Q1.

What This Means For Small Businesses

Small business owners are well aware of the stagnant economy in which they operate. The latest Labor Department data coincides with the latest NFIB Small Business Economic Trends report, which showed that more small business owners are expecting worsening economic conditions over the second half of the year than improving conditions. As NFIB Chief Economist Bill Dunkelberg forecast, “Uncertainty is high, expectations for better business conditions are low, and future business investments look weak. Our data indicates that there is little hope for a surge in the small business sector anytime soon.”

Additional Reading

The Philly (PA) also covers the latest Labor Department productivity and labor costs data.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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