Preliminary data showed productivity soared at an annual rate of 6.4% in the second quarter, the best reading since 2003 and ahead of the consensus forecast provided by Bloomberg of 5.5%.
The jump in productivity pushed unit labor costs down by 5.8%, the biggest drop since 2000 and well below a forecast decline of 2.8%.
The big increase in productivity occurred as output fell much more modestly versus 1Q amid an easing of the recession, but hours worked continued on a steep downward path. Translation: unemployment jumped in the quarter just ended.
Strong gains in productivity bode well for corporate profits and are typical in the early stages of a recovery because production bottoms while firms are reluctant to initially add to staff.
Rising productivity also holds down unit labor costs, which helps keep inflation in check, but the downside can be a lack of meaningful improvement in the jobless rate.
