US productivity unexpectedly drops for a third-straight quarter

A worker moves an automotive tire down a conveyor belt at the Continental Tire Sumter plant distribution warehouse in Sumter, South Carolina.
Luke Sharrett | Bloomberg | Getty Images

U.S. nonfarm productivity unexpectedly fell in the second quarter, pointing to sustained weakness that could raise concerns about corporate profits and companies' ability to maintain their recent robust pace of hiring.

The Labor Department said on Tuesday that productivity, which measures hourly output per worker, dropped at a 0.5 percent annual rate in the April-June period. It was the third consecutive quarterly decline.

Productivity fell at an unrevised 0.6 percent rate in the first quarter. Economists polled by Reuters had forecast productivity rising at a 0.4 percent rate in the second quarter.

Productivity decreased at a 0.4 percent rate compared to the second quarter of 2015, the fastest pace of decline in three years. Revisions to data going back to 2013 also confirmed the softening productivity trend, which over time would suggest pressure on corporate profits and a slowdown in job gains.

Strong employment gains have helped to raise output. Nonfarm payrolls increased by more than 500,000 jobs in June and July.

Output per worker in the second quarter increased at a 1.2 percent rate, up from the 0.7 percent pace notched in the January-March period. The government reported last month that gross domestic product rose at a 1.2 percent annual rate in the second quarter following a 0.8 percent rise in the first quarter.

Unit labor costs, the price of labor per single unit of output, increased at a 2.0 percent pace in the second quarter.

First-quarter unit labor costs were revised to show a 0.2 percent rate of decrease, instead of the previously reported 4.5 percent increase. Second-quarter unit labor costs rose at a 2.1 percent rate compared to the same period of 2015.

Hourly compensation per hour rose at a 1.5 percent rate in the second quarter after falling at a 0.8 percent pace in the prior quarter.