US productivity likely to rebound modestly in coming years, but may not return to pre-recession trend

The US Labor Department released its preliminary Q1 productivity report yesterday. According to the report, nonfarm business output per hour fell 1% q/q saar, slightly lower than Barclays projection of a drop of 1.4%. Productivity on a year-on-year basis remained at 0. 6%. This is consistent with the sluggish trend for possible output growth. The real value added for nonfarm business sector expanded only 0.4% q/q saar in the first quarter.

The hours of employee continued to grow, rising 1.5% q/q saar and 1.6% y/y, in spite of slow output growth. Moreover, labor compensation also strengthened. Compensation per hour rose 3% q/q saar and 2.8% year-on-year. Nominal unit labor compensation’s annual growth has been trending higher since the start of 2014. Additional tightening of labor markets are likely to underpin the continuation of the higher trend, noted Barclays.

Compensation per hour in real terms rose 3.4% q/q saar and 1.7% y/y. Meanwhile, unit labor costs grew 4.1% q/q saar and 2.3% y/y in the first quarter. This was slightly above Barclays’ expectations.

The Labor Department’s report is in line with the view that the potential output of the US continues to be depressed following the Great Recession. Productivity is likely to rebound modestly in the coming years. However, it is unlikely for the productivity growth to return to the pre-recession trends, according to Barclays.