US Productivity Grew a Healthy 2.3% Rate in 2nd Quarter

U.S. productivity increased at a decent pace in the second quarter, a trend that could lead to higher wages if it continues.

The Labor Department said Thursday that productivity — or output per hour worked — rose 2.3% in the April-June quarter, down from 3.5% in the first three months of the year. The first quarter gain was the best in four years.

Greater productivity is a key ingredient in raising living standards. It enables companies to lift worker pay without raising prices on costumers. The recovery, now in its 11th year, has been held back by historically weak productivity growth. It has grown at roughly two-thirds of its historical average since the recession began.

Yet productivity has picked up in recent quarters and expanded 1.8% in the past year. That's below the 2.1% long-term annual average, but better than the 1.3% average increase since the recession began in 2007.

Productivity increased in the April-June quarter largely because the number of hours employees worked fell 0.4%, the weakest showing since the third quarter of 2009, just after the Great Recession ended.

Hiring has been solid though it has slowed from its rapid pace last year. But the average hours worked per week by all employees has slipped. Yet economic output still grew 1.9%, which means workers were more efficient.

Labor costs also rose at a healthy clip, which could push up inflation in the coming months. Labor costs grew 2.4%, following a large 5.5% increase in the first quarter that was revised substantially higher.

Last month the Commerce Department revised its figures on gross domestic product, the broadest measure of the economy's growth, and found that incomes rose strongly in the first quarter.