U.S. May nonfarm productivity contracted 0.6% annualized
U.S. nonfarm productivity fell less sharply than initially thought in the first quarter and labor-related costs surged for a second straight quarter as companies hired more workers to raise output, suggesting profits could remain under pressure.
The Labor Department said on Tuesday productivity, which measures hourly output per worker, contracted at an annualized rate of 0.6 percent, instead of the 1.0 percent pace the government reported last month.
Productivity fell at a 1.7 percent rate in the fourth quarter. The revision for the first quarter, which reflected modestly higher output than previously estimated, was in line with economists’ expectations.
“Despite subdued wage growth, low productivity growth means that companies still face significant labor costs for producing an extra unit of output,” said Blerina Uruci, an economist at Barclays in New York. “Fast-rising unit labor costs have been associated with weak profits for companies in recent years.”
Corporate profits have been soft, also hurt by a strong dollar, which has undercut demand for U.S.-manufactured goods and overseas earnings of multinational firms. After-tax corporate profits fell 5.1 percent in 2015 and rose at only a 0.6 percent rate in the first quarter.
U.S. financial markets were little moved by the productivity report.
Output per worker in the first quarter was revised to show a 0.9 percent rate of increase, up from 0.4 percent. The government last month raised its first-quarter economic growth estimate to a 0.8 percent rate from the 0.5 percent pace reported in April.