Productivity Rises as Self-Employed Work Fewer Hours
Worker productivity unexpectedly grew in the third quarter, reflecting a slump in the number of hours worked by self-employed Americans.
The measure of employee output per hour increased at a 1.6% annualized rate, exceeding all estimates of 57 economists surveyed by Bloomberg News. The total number of hours worked from July through September dropped by the most in six years, dragged down by an 18% plunge at an annual rate among those working for themselves.
Productivity has struggled to develop a sustained pickup since the United States emerged from a recession in 2009, in part because of sluggish business spending and subdued returns on investment in new technology such as computers. Weak efficiency, in addition to crimping corporate profits, limits how fast the economy can expand without generating inflation.
“Productivity gains are important,” Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida, said before the report. “That’s how you get an increase in the standard of living.” Nonetheless, “the trend growth in productivity has slowed.”
The median forecast in a Bloomberg survey called for a 0.3% drop in productivity, with estimates ranging from a decline of 1.5% to an advance of 0.9%. The reading for the prior three months was revised to show a 3.5% gain compared with the last reported increase of 3.3%.
Another Labor Department report Nov. 5 showed the number of applications for unemployment benefits climbed more than forecast to reach a five-week high. Jobless claims rose by 16,000 to 276,000 in the week ended Oct. 31, toward the top of the range they’ve been in since the middle of July.
Persistent weakness in productivity is among the concerns noted by several Federal Reserve policymakers. The central bank is weighing whether to increase the benchmark interest rate in December for the first time since 2006.
Expenses per worker increased at a 1.4% pace. These so-called unit labor costs, which are adjusted for efficiency gains, were forecast to climb 2.5%, according to the Bloomberg survey median.
Total hours worked dropped at a 0.5% pace, the biggest decrease since the third quarter of 2009, the figures also showed.
The world’s largest economy expanded at a slower pace in the third quarter as companies took advantage of gains in consumer and business spending to reduce bloated stockpiles, Commerce Department data showed on Oct. 29. Gross domestic product grew at a 1.5% annual rate, following a 3.9% surge in the second quarter.
Slowing efficiency raises concern because it limits economic growth from gaining momentum in the longer term. The pace at which an economy can expand without stoking inflation — which economists refer to as its speed limit — reflects the rate of growth of the labor force and how much each worker can produce.
Weaker productivity would therefore indicate advances in GDP will also be restrained in coming years. While economists attribute it to a host of reasons including lack of adequate capital investment and a cooling pace of innovation, there’s also a debate about measurement problems.
The outlook for productivity and its persistent slowdown in recent years has implications for how far and how fast the Fed may raise the benchmark rate once they begin to tighten.
With softer efficiency, businesses’ profits are under pressure. Companies in the Standard & Poor’s 500 Index are projected to post the first back-to-back quarterly earnings decline since 2009, according to Bloomberg data.
