Chart of the week
Hourly productivity in the US non-farm business sector rose 2.4% year-on-year in the first quarter of 2019. Between end-2011 and end-2016, it grew on average by 0.7%. In 2017 and 2018, the rate increased to approximately 1.3% per year. So, will this sharp rise break the trendline?
Productivity growth is notoriously difficult to forecast over the short term and the recent strong reading could well be an outlier. Some of the rise is due to a sharply lower denominator (a fall in the number of hours worked). Indeed, other sources suggest a higher figure.
Whatever the case, a pick-up in productivity helps to explain why tighter labour market conditions have not yet translated into faster inflation. Year-on-year unit labour costs, which take productivity levels into account, are only rising at 0.1%, their lowest since 2013. This may explain why corporate profits remain buoyant.
If this pick-up in productivity is confirmed in the quarters ahead, it is good news for the US economy and should enable the current expansion to continue.
The opinion expressed above is dated May 9, 2019, and liable to change.
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