U.S. Workers' Productivity Eased 0.1% in 2nd Quarter
April 27, 2011
Riverside -- Productivity edged down 0.1% at an annual rate in the second quarter, according to the Labor Department, a slip that was significantly less than many economists had predicted. Business inventories, meanwhile, crept up 0.1% in June as sales fell 0.5%, the first decline in five months, the Commerce Department said. Inventories expanded about $510 million to $997.49 billion, mostly reflecting higher inventories at retailers, while total business sales fell a seasonally adjusted $3.6 billion to $711.53 billion. Some analysts had predicted that retailers would begin rebuilding their inventories after reducing them earlier this year. Inventories of manufacturers and wholesalers remained largely unchanged. The full text of the Labor Department's report on workplace productivity and the Commerce Department's report on business inventories is available. The productivity decline didn't match economists' expectations partly because the rise in hours worked in the nonfarm business sector -- 4.3% -- roughly matched the rise in output -- 4.2%. Productivity data are being closely monitored by the Federal Reserve as it prepares for Tuesday's meeting on whether to raise short-term interest rates. The Fed raises rates as a way to keep a lid on inflation, and productivity improvements generally keep consumer prices down by restraining businesses' unit labor costs, which increased 3.8% in the second quarter, more than double the first period's 1.5% rise. Despite the increase, analysts say unit labor costs remain relatively low by historical standards. The drop in second-quarter productivity followed a revised 1.8% surge in the first quarter; that gain was well above the average annual rate of about 1%. Analysts said the productivity drop is only temporary, a statistical fluke based on strong employment gains in April and May. ``Inflation should not rise and productivity should pick up again in the third quarter, as hours increase more slowly,'' said Graham Johnston, an economist for the National Association of Manufacturers. For now, businesses seem to be absorbing increased labor costs rather than passing them on to consumers through higher prices. The gross domestic product deflator rose only 2.1% in the second quarter. In the manufacturing sector, productivity continued to rise, but at only a 1.5% rate -- the slowest in three years. Durable-goods manufacturing made up most of the increase. The numbers in both reports are seasonally adjusted.
