A new report from the Bureau of Labor Statistics (BLS) showed that nonfarm business sector labor productivity rose by 0.9 percent during the second quarter of 2017, as output (+3.4 percent) increased faster than hours worked (+2.5 percent). That is better than the 0.8 percent gain economists had anticipated and a significant rebound following the first quarter’s paltry, albeit upward-revised, 0.1 percent increase. The latest improvement in productivity growth is related to the Q2 resurgence in economic activity (GDP), and overall productivity in the first half of 2017 looks a lot better than it did in H1 2016.
However, productivity growth in America remains well below the average seen during past business cycles, which is discouraging because Federal Reserve Chair Janet Yellen described productivity growth as the “most important factor determining continued advances in living standards.” Muted business investment has been a major drag on productivity growth in recent years, as companies have relied more heavily on boosting staff sizes to meet increased customer demand rather than investing in technology and education to increase efficiency. On the bright side, the latest GDP data suggest that business investment in America is continuing to improve. Add to that the pro-growth environment expected from the new administration and a more pronounced rebound in productivity may finally be possible.
Sources: Econoday, U.S. DoL, FRBSLPost author: Charles Couch