USA has a Productivity Problem

USA has a Productivity Problem

The nonfarm business sector labor productivity, measured as the output produced by all American workers per hour worked, decreased at a 0.5 percent annual rate in the April-June period, compared with a 0.6-percent decline in the first quarter, the department said.

The fall in productivity reflected an increase of 1.2 percent in output and an increase of 1.8 percent in hours worked in that period.

It was the third consecutive quarter of falling productivity, the longest streak since 1979. On a year-on-year basis, the productivity fell 0.4 percent, the first annual decline since the second quarter of 2013.

Unit labor costs in the nonfarm business sector increased at a 2 percent annual rate in the second quarter after falling at a 0.2 percent pace in the first quarter, which was revised down from a previous estimate of a 4.5 percent gain.

Compared with a year earlier, unit labor costs were up 2.1 percent in the second quarter.

Federal Reserve Chair Janet Yellen said in June that the outlook for productivity growth was a key uncertainty for the U.S. economy and a key determinant of improvements in living standards.

While the labor productivity growth averaged less than 0.5 percent per year since 2010, She was “cautiously optimistic” that the productivity could rebound in the future with public policy support.

“It would be helpful to adopt public policies designed to boost productivity. Strengthening education and promoting innovation and investment, public and private, will support long-term growth in productivity and greater gains in living standards,” Yellen said.

The U.S. economy grew at an annual rate of 1.2 percent in the second quarter this year, far below the market expectation of over 2 percent, according to the Commerce Department.

The lackluster growth could be a concern for Fed officials on whether the economy could absorb a further rate hike.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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