U.S. companies face a combination of dismal productivity growth, accelerating wages and sluggish demand, raising the risk those factors will slow hiring, cut spending further and weaken an already-fragile economy.
Figures released Tuesday by the U.S. Labor Department show labour productivity, or the amount of goods and services employees produce per hour worked, fell at a 0.6% annual rate in the first quarter.
The drop, while less steep than initially estimated, extended a troubling slowdown that has hindered the economy’s ability to lift Americans’ living standards.
Stronger productivity boosts corporate profits, giving firms more money to pay their workers. Productivity grew an average 2.2% since World War II but has expanded just 0.5% over the last five years. Only in the five years through late 1982 has it grown as slowly.
Meanwhile, workers’ hours and compensation are accelerating, suggesting the labour market is at near or a level of employment deemed to be healthy without stoking too much inflation.
The report also said hourly compensation, including everything from salaries to retirement benefits and health care costs, surged 3.9% annually in the first quarter. It rose 3.7% over the past year, marking the biggest annual gain in two years.
