Labor productivity in the United States declined in the first quarter for the first time in nearly three years as economic output dropped, ending the previous streak of efficiency growth that had helped mitigate the impact of employment costs on inflation.
According to data released by the U.S. Bureau of Labor Statistics on Thursday (May 8th), productivity (i.e. output per hour by non-farm employees) declined at an annualized rate of 0.8%. The revised growth rate was 1.7% in the fourth quarter of last year and 2.3% in the third quarter. Productivity increased by 2.3% for the whole of last year. This was the highest level in 14 years except for 2020.
Unit labor cost (that is, the cost that enterprises pay to employees for producing a unit of output, adjusted for productivity) jumped 5.7% in the first quarter, the largest increase in a year.
Bloomberg's previous report pointed out that the soaring productivity in recent years has helped ease the pressure in the job market and brought the inflation rate closer to the Federal Reserve's 2% target level.
On June 30th, Raphael Bostic, the president of the Atlanta Federal Reserve Bank, stated that tariffs might have a gradual impact on prices rather than a one-time shock, which could lead to more persistent upward pressure on inflation.
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