U.S. productivity growth slows considerably in Q1 2017

The rate of productivity growth in the U.S. slowed considerably in the first quarter of this year, with nonfarm business output per hour falling 0.6 percent quarter-on-quarter. Slower output growth of 1 percent, mainly drove the weakness in productivity, while employee hours growth accelerated slightly to 1.6 percent from the prior quarter.

Real compensation per hour dropped 0.8 percent after coming in flat in the prior quarter. Unit labor costs were up 3 percent. On a year-on-year basis, productivity was up 1.1 percent, the same as the fourth quarter of last year. However, there is a clear improvement from the very low level since the fourth quarter of 2015. However, in spite of the recent stabilization, growth in productivity continues to be weakened by historical standards.

On the contrary, unit labor costs growth has been trending higher. Subdued growth in output prices and rapidly rising unit labor costs have hurt unit profits for firms in recent years and have been one of the factors averting wages from picking up at a more rapid rate. But unit profits have rebounded slightly in the past two quarters and are now in positive territory for the first time since the beginning of 2015, noted Barclays in a research report.