US preliminary Q2 productivity rose 0.9%, vs 0.7% increase expected

An employee sorts a box of wood handles in the warehouse of the Vaughan & Bushnell Manufacturing Co. facility in Bushnell, Illinois.
Daniel Acker | Bloomberg | Getty Images

U.S. worker productivity rose more than expected in the second quarter amid an increase in hours, but the trend remained weak, suggesting that robust economic growth could remain elusive.

The Labor Department said on Wednesday nonfarm productivity, which measures hourly output per worker, increased at a 0.9 percent annualized rate in the April-June period. First-quarter productivity was revised to show it edging up at a 0.1 percent pace instead of being unchanged as previously reported.

Compared to the second quarter of 2016, productivity increased at a 1.2 percent rate. Economists polled by Reuters had forecast productivity increasing at a 0.7 percent pace in the second quarter.

The government also revised data going back to 2014, in line with recent revisions to gross domestic product figures.

Those revisions showed productivity falling 0.1 percent in 2016, the first drop since 1982. That suggests the economy's potential rate of growth has declined.

Anemic productivity is bad news for President Donald Trump who has pledged to boost annual economic growth to 3.0 percent through tax cuts, infrastructure spending and a rollback of regulation.

Economists blame soft productivity on a shortage of workers as baby boomers retire as well as the impact of rampant drug addiction in some parts of the country. A report on Tuesday showed job openings surging to a record 6.2 million in June.

Other economists also argue that low capital expenditure, which they say has resulted in a sharp drop in the capital-to-labor ratio, is holding down productivity.

There is also a perception that productivity is being inaccurately measured, especially on the information technology side. Annual economic growth has not surpassed 3 percent or more since 2005. Gross domestic product expanded at a 2.6 percent annualized rate in the second quarter.

Hours worked increased at a rate of 2.5 percent in the April-June period after rising at a 1.6 percent pace in the first quarter. As a result, output per worker surged at a 3.4 percent rate, the fastest since the first quarter of 2015, after rising at a 1.8 percent pace at the start of the year.

Unit labor costs, the price of labor per single unit of output, increased at a 0.6 percent pace in the second quarter after jumping t a 5.4 percent rate in the January-March period.

Compared to the second quarter of 2016, unit labor costs fell at a 0.2 percent rate.