U.S. Labor Productivity Slumps 2.5% In Q1, Much Less Than Expected

A report released by the Labor Department on Thursday showed U.S. labor productivity pulled back by much less than expected in the first quarter.

The Labor Department said labor productivity slumped by 2.5 percent in the first quarter after jumping by 1.2 percent in the fourth quarter of 2019. Economists had expected productivity to plunge by 5.5 percent.

The decrease in productivity, a measure of output per hour came as output plummeted by 6.2 percent compared to a 3.8 percent slump in hours worked.

Paul Ashworth, Chief U.S. Economist at Capital Economics, noted the steeper drop in output was partly because the employment numbers for March are based on the monthly survey taken around the 12th of the month, whereas the output numbers include all of March.

“That makes a big difference when most lockdowns only began around the middle of that month,” Ashworth said.

He added, “We might even see a rise in the average level of productivity during this recession, because the job losses have been concentrated in low-productivity sectors like retail and food services, which account for much bigger shares of total employment than GDP.”

Meanwhile, the report said unit labor costs skyrocketed by 4.8 percent in the first quarter after climbing by 0.9 percent in the fourth quarter. Labor costs had been expected to surge up by 4.0 percent.

The spike in labor costs in the first quarter reflected the pullback in productivity as well as a 2.2 percent jump in hourly compensation.

Real hourly compensation, which takes into account changes in consumer prices, climbed by 0.9 percent in the first quarter.

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