US Q1 labour productivity grows above post-WWII trend
Labour productivity in the States grew at its fastest pace in over eight years at the start of 2019, edging past its post-WWII average, but economists cautioned such gains could not be sustained.
According to the Department of Labor, non-farm labour productivity in the US picked up from the quarterly annualised pace of 1.3% observed over the last three months of 2018 to 3.6% (consensus: 0.9%), the best reading since the third quarter of 2010.
That performance was also better than the average post-WWII performance of 2.2%, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
However, such a fast pace of growth was "unsustainable", with the trend lying closer to 1.0-1.5%, he said.
Fourth quarter productivity was originally reported at up by 1.9%.
Boosting productivity, output gains accelerated from the 2.6% pace seen at the end of 2018 to 4.1%, even as the rate of increase in the number of hours worked slowed from a 1.3% clip over the fourth quarter to 0.5% in the first.
But such output gains would not be repeated and hours worked were depressed by adverse weather, Sheperdson said.
Nonetheless, he labeled the improvement in productivity growth since the 2016 meltdown induced by lower capital expenditures in the US oil and gas sector "impressive".
Unit labour costs depressed, but expected to jump back
Higher productivity dragged on unit labour cost growth, with the rate of increase in the latter slipping from 2.5% to -0.9%.
Also weighing on labour cost growth was the slowdown in hourly compensation, from 3.9% to 2.6%.
Four quarter unit labour cost growth was initially pegged at 2.0%.
Versus a year-ago, non-farm labour productivity was up by 2.4% and unit labour costs - one of the key drivers of inflation - was just 0.1% higher.
But big negative base effects were set to push the year-on-year rate of growth in labour costs back to 2.0% over the second quarter, said Ian Shepherdson, .
"For now, though, these numbers look great, both from an inflation and corporate earnings perspective. Just don’t extrapolate these data into the rest of the year in a straight line; that’s not going to happen," he said.
"The quarterly numbers are wild but y/y productivity growth hit 2.4% in Q1, the best performance since Q3 2010 and slightly better than the long-run post-WWII average, 2.2%. It’s tempting, therefore, to declare victory over the secular stagnationists but that would be very premature; productivity growth probably can’t be sustained at this pace."