U.S. Productivity Grew at Solid 3.4 Percent Rate in Q1

The first quarter gain was more than double the 1.3 percent increase in the fourth quarter, though down from an earlier estimate.

U.S. productivity grew at a strong 3.4 percent rate in the January-March quarter, the best showing in more than four years, the Labor Department reported Thursday. It was an encouraging sign that productivity may finally be improving after a long stretch of weakness.

The first quarter gain was more than double the 1.3 percent increase in the fourth quarter, although it was slightly lower than an initial estimate of 3.6 percent made a month ago. Labor costs fell during the first quarter, declining by 1.6 percent following a 0.4 percent drop in the fourth quarter.

Productivity, the amount of output per hour of work, is a key factor determining an economy's growth potential. If the current rebound continues, it would provide support for President Donald Trump's efforts to achieve sustained 3 percent growth rates.

The slight downward revision in productivity reflected the fact that overall output, as measured by gross domestic product, was revised down from an initial estimate of 3.2 percent growth to 3.1 percent growth in the first quarter.

The 3.4 percent advance in productivity was the strongest increase since a 3.7 percent rise in the third quarter of 2014. Productivity has risen 2.4 percent over the past four quarters, the best performance since a 2.7 percent four-quarter gain in 2010.

Productivity gains over the past decade have been lackluster, averaging just 1.3 percent annually from 2007 through 2018. That was less than half the 2.7 percent gains seen from 2000 to 2007, a period when the economy was benefiting from technology improvements in computers and the internet. From 1947 through 2018, annual productivity gains averaged 2.1 percent.

Economists see the slowdown in productivity over the past decade as one of the country's biggest economic challenges. But recent signs indicate that may be turning around. The economy's potential to grow is governed by two major factors, growth of the labor force and growth in productivity.

For all of 2018, GDP growth was 2.9 percent. The Trump administration has projected sustained GDP gains of 3 percent or better over the next decade, well above the 2.2 percent average GDP gains seen since the current expansion began in June 2009.

In a separate report Thursday, the Labor Department said that applications for unemployment benefits, a proxy for layoffs, held steady at 218,000 last week. That is a low level that indicates a strong job market. The government will release its May jobs report on Friday.

Main image: In this May 22, 2019, file photo window washers work on Encore Boston Harbor in Everett, Mass. On Thursday, June 6, the Labor Department issues revised data on productivity in the first quarter. (AP Photo/Michael Dwyer, File)

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