US productivity falls in second quarter, biggest annual drop ever

US worker productivity fell in the second quarter at its fastest annual pace since 1948, the Labor Department said on Tuesday, while growth in unit labor costs accelerated, suggesting that strong wage pressures will continue to help keep inflation elevated.
Nonfarm productivity, which measures hourly output per worker, fell at a 2.5% pace from a year ago. After falling by an upwardly revised 7.4% in the first three months of that year, it also fell sharply in the second quarter to a 4.6% annual rate, the report showed.
Economists polled by Reuters had expected productivity to fall by 4.7% in the April-June period.
Major changes in the composition of the US workforce following the Covid-19 pandemic have made it difficult to measure underlying productivity growth, which some economists put at around 1.0% or less, making the Federal Reserve’s fight against inflation more difficult.
Hours worked rose 2.6% in the second quarter.
Unit labor costs – the price of labor per unit of output – rose at a rate of 10.8%. That follows a 12.7% growth rate in the first quarter.
Unit labor costs increased by 9.5% from a year ago. A severe labor shortage is driving wage growth. There were 10.7 million job openings at the end of June.
Hourly compensation rose 5.7% in the second quarter and 6.7% compared to the second quarter of 2021.

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