The productivity of American businesses fell at a 1.7% annual rate from January through March, the Labor Department said today.
Economists had expected a seasonally adjusted 1.1% decline based on the weak pace of U.S. growth in the first quarter. Gross domestic product barely expanded at a miserly 0.1% pace, preliminary data show.
The drop in productivity came from companies producing fewer goods and services even as the amount of time their employees worked went up. Poor weather contributed to the disparity as many employees had trouble getting to work or performing their jobs as usual.
Hours worked climbed 2.0% in the first three months of 2014 while output of goods and services rose a scant 0.3%.As a result, unit-labor costs jumped by 4.2% to mark the biggest increase in five quarters. They have risen at a smallish 0.9% annual rate, however, in the 12 months ended March 31, indicating that labor costs remain contained. Unit-labor costs reflects how much it costs a business to produce one unit of output, such as a crate of toys or a ton of aluminum.
The manufacturing sector was the one bright spot in the report: productivity climbed 3.3%. Unit-labor costs among manufacturers barely increased with a 0.1% gain.
Productivity is usually a good barometer of a nation’s well-being. Companies earn higher profits when productivity rises, and they can use the extra cash to invest, pay higher dividends to shareholders or give workers bigger wages. The wealthiest countries have the most productive workers.
Yet since the recession ended, and even before that, productivity gains in the U.S. workplace haven’t translated into higher wages as much as they normally do. Economists aren’t sure exactly why or whether the condition is likely to persist. While some of the extra profit has been diverted to shareholders, most businesses have not raised investment or sharply increased wages.
In the first quarter, for example, hourly wages advanced at a modest. 2.4% annual rate. The gain was a much smaller 0.5% after adjusting for inflation.In the fourth quarter, meanwhile, the increase in overall U.S. productivity was revised up to 2.3% from 1.8%.For all of 2013 productivity climbed 0.5%, well below the historical average of about 2%.