U.S productivity growth rebounds in Q1 2018, rises below expectations

U.S productivity growth rose sequentially in the first quarter of this year. Productivity growth was up 0.7 percent, as compared with a revised growth of 0.3 percent recorded in the prior quarter. This was slightly below consensus expectations of a rise of 0.9 percent. The rebound compared to the fourth quarter was driven by a smaller rise in employee hours, which rose 2.1 percent in the first quarter, as compared with solid 3.3 percent rise in the fourth quarter.

Growth in nonfarm business output, meanwhile, dropped to 2.8 percent in the first quarter. Overall, weaker hiring in the first quarter, along with mediocre output growth, helped in boosting productive growth as compared with the fourth quarter, when both hiring and output levels were stronger, noted Barclays in a research report.

Compensation per hour was up 3.4 percent sequentially, while adjusted for inflation dropped 0.1 percent. Unit labor costs was up 2.7 percent, the most solid reading since the first quarter. On a year-on-year basis, productivity growth grew 1.3 percent, about where it has been on average for most of the recovery.

“We see some potential for productivity to rise in the coming years if the Tax Cut and Jobs Act, along with buoyant and synchronized global growth, induces a sustained acceleration in business investment spending”, stated Barclays in a research report.

Unit labor costs were up 1.1 percent year-on-year in the first quarter, while compensation per hour rose 2.5 percent year-on-year, widely consistent with the signal from average hourly earnings.

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