U.S. productivity surged in the first quarter, capping the strongest two-year period since 2010 and offering more evidence that the economy can extend its expansion amid headwinds from an escalating trade war with China.
The Labor Department said on Wednesday nonfarm businesses increased output at a 3.6 percent annualized rate, the fastest pace since 2015, after a revised 2.3 percent advance in the fourth quarter. Productivity increased at a 2.4 percent rate compared to the first quarter of 2018, the best performance since the third quarter of 2010.
The strong pace of productivity suppressed growth in labor costs, a potential boost to corporate profits even as businesses face pressure to raise wages as they compete for workers amid an unemployment rate near a 49-year low of 3.8 percent.
Hourly compensation increased at a 2.6 percent rate, slowing from the fourth quarter’s brisk 3.9 percent pace. Hourly compensation increased at a 2.5 percent rate compared to the first quarter of 2018.”
The data shows that productivity has been on an upswing in recent years, culminating in a strong first quarter in 2019. This is good news for businesses, as it means that they can continue to increase output without having to raise wages by as much as they would have to in a tight labor market. This will help them to remain profitable even as they face other challenges, such as those posed by tariffs and other trade issues.