US Productivity Posts Strong Q2 Gain

US labor productivity grew faster than expected in the second quarter, suggesting businesses became more efficient despite only modest increases in working hours.

The stronger reading may also help ease concerns about rising labor costs by showing that output is growing faster than labor input.

Output Outpaces Hours Worked

Preliminary data showed nonfarm business productivity rose 1.4% in the second quarter, well above the 0.6% market forecast. Business output increased 1.7%, while hours worked rose just 0.3%, allowing companies to produce more with relatively little additional labor.

Manufacturing Joins the Recovery

Productivity gains were broad-based across the manufacturing sector:

Manufacturing productivity rose 1.9%.
Factory output increased 4.6%, while hours worked grew 2.6%.
Durable goods productivity climbed 2.7%.
Nondurable goods productivity increased 2.0%.

The gains across both manufacturing groups suggest the improvement was not limited to a single part of the sector.

A Positive Sign for Growth

Compared with a year earlier, nonfarm business productivity rose 2.2%, while manufacturing productivity increased 0.9%. Stronger productivity can support economic growth and improve corporate profit margins by helping businesses generate more output without a similar rise in labor costs. Whether this momentum continues will depend on future economic data.

Source: US BLS

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