U.S. nonfarm productivity rebounded more strongly than expected in the second quarter, but a sharp slowdown in unit labor costs pointed to still-tame wage pressures that could give the Federal Reserve room to keep interest rates low for a while.
The Labor Department said on Friday productivity increased at a 2.5 percent annual rate after contracting at a revised 4.5 percent pace in the first quarter, which was the fastest decline since the fourth quarter of 1981.
Productivity, which measures hourly output per worker, was previously reported to have declined at a 3.2 percent rate in the first three months of the year.
Economists polled by Reuters had forecast productivity rising at a 1.5 percent rate in the April-June period. The rebound in productivity is in line with a bounce back in gross domestic product in the second quarter.
The economy grew at a 4.0 percent rate after shrinking at a 2.1 percent pace in the first quarter.
The trend in productivity, however, remains sluggish. Compared to the second quarter of 2013, productivity increased 1.2 percent.
Growth in output increased at a 5.2 percent rate in the second quarter after dropping at a revised 2.4 percent rate in the first quarter. Output was previously reported to have declined at a 1.1 percent pace.
Workers put in a bit more hours in the second quarter, but with output rising, that lowered labor costs.
Unit labor costs, the price of labor per single unit of output, rose at a 0.6 percent rate after advancing at a revised 11.8 percent rate, which was the quickest since the fourth quarter of 2012.
Unit labor costs were previously reported to have increased at a 5.7 percent rate in the first quarter and economists had expected them to increase at a 1.4 percent pace in the second quarter.
Compared to the second quarter of last year, unit labor costs rose 1.9 percent, showing that wage inflation remained benign. They had increased 2.6 percent in the first quarter.