A report out this morning from the Bureau of Labor Statistics (BLS) showed that nonfarm business sector labor productivity (employee output per hour) rose at an annual rate of 3.1 percent during the third quarter of 2016, as output increased much faster than hours worked. That was slightly worse than expected following last week’s solid upward revision to Q3 gross domestic product (GDP) growth, which the productivity measure is derived from, and due to an uptick in hours worked that offset the gain in output. Regardless, this was still the first quarterly productivity improvement in a year and the largest increase since 2014. The latest rebound in productivity is a welcome change of pace following three straight quarters of declines, especially since Federal Reserve Chair Janet Yellen earlier last year described productivity growth as the “most important factor determining continued advances in living standards.” However, it is still way too early to tell whether the long-term down trend in productivity growth has truly ended because output per hour is essentially flat over the past twelve months. Further, disappointing business investment remains a drag on productivity growth, exacerbated by weak core capital expenditures and muted fixed nonresidential investment. The pro-growth policies expected from the incoming administration can hopefully address these headwinds.
Sources: Econoday, Bloomberg, ZH, U.S. DoL, FRBSLPost author: Charles Couch