U.S. Labor Productivity Shows Substantial Increase In Q2

A report released by the Labor Department on Wednesday showed labor productivity in the U.S. spiked by more than expected in the second quarter, while unit labor costs unexpectedly decreased.

The Labor Department said productivity shot up by 2.9 percent in the second quarter after rising by a revised 0.3 percent in the first quarter.

Economists had expected productivity to jump by 2.3 percent compared to the 0.4 percent increase that had been reported for the previous quarter.

The sharp increase in productivity, a measure of output per hour, came as output soared by 4.8 percent and hours worked climbed by 1.9 percent.

The report also said unit labor costs fell by 0.9 percent in the second quarter after surging up by a revised 3.4 percent in the first quarter.

Labor costs had been expected to rise by 0.3 percent compared to the previously reported 2.9 percent spike in the first quarter.

The unexpected pullback in unit labor costs came as a 2.0 percent jump in hourly compensation was offset by the sharp increase in productivity.

The Labor Department said real hourly compensation, which takes changes in consumer prices into account, rose by 0.3 percent in the second quarter after edging up by 0.2 percent in the first quarter.

Compared to the same quarter a year ago, productivity was up by 1.3 percent in the second quarter, as output jumped by 3.5 percent and hours worked increased by 2.2 percent.

Andrew Hunter, U.S. Economist at Capital Economics, noted the annual productivity growth was exactly in line with the average annual gain between 2007 and 2017.

"That second-quarter gain was the biggest in almost four years but, for those keeping score, there were five quarters with faster productivity growth during the Obama presidency," Hunter said. "All that really tells us, however, is that quarterly productivity growth tends to be quite volatile."

Unit labor costs were up by 1.9 year-over-year in the second quarter amid a 3.2 percent surge in hourly compensation. Real hourly compensation was up just 0.5 percent year-over-year.