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, the longest such stretch since 1979.
“The reason the economy has still been able to expand is because of labor input. Firms are hiring people at a reasonably healthy rate,” said Joseph LaVorgna, chief economist at Deutsche Bank Securities in New York.
“However, we do not believe this can last, because strong hiring in the face of weak productivity necessarily implies a further deterioration in corporate profit margins.”
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.
U.S. stocks were higher in mid-morning trading, while prices for longer-dated U.S. Treasuries also rose. The dollar .DXY was weaker against a basket of currencies.
Productivity decreased at a 0.4 percent rate compared to the second quarter of 2015, the fastest year-on-year 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.