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The numbers: U.S. nonfarm productivity, which measures hourly output per worker, rose at a 5.4% annual rate in the first quarter after a sharp decline in the prior three months, the Labor Department said Thursday.
Economists polled by the Wall Street Journal expected a 4.5% gain.
Output increased 8.4% in the first three months of the year while hours worked rose 2.9%.
The decline of productivity in the final three months of 2020 was revised to a 3.8% decline from a drop of 4.2%. That’s the biggest drop since 1990.
Over the last year, productivity increased 4.1%, the fastest pace since the first quarter of 2010.
What happened: Unit labor costs – the price of labor for single unit of output – fell at a 0.3% rate. Over the past year, costs increased 1.6%.
Economists had expected a 1% drop.
Unit labor costs in the fourth quarter were revised to a gain of 5.6%, down slightly from the prior estimate of 6%.
Big picture: Economists pay more attention to longer-run trends in productivity and compensation. In general, economists expect productivity to strengthen in coming quarters as the economy continues to reopen from the COVID pandemic. Some economists are watch unit labor costs as a forward signal of consumer inflation.
Ian Shepherdson, chief economist at Pantheon Macroeconomics said the trend in productivity growth and unit labor costs are “hidden by the noise triggered by the pandemic, and we suspect it won’t re-emerge clearly until well into next year. “
What are they saying? “We expect productivity to strengthen in coming quarters and remain well supported as the economy experiences a mini boom in activity and the labor market lags the overall recovery,” said Kathy Bostjancic, economist at Oxford Economics.
Market reaction: The Dow Jones Industrial Average
DJIA,
was up 175 points in mid-morning trading Thursday one day after reaching at a new all-time high.
