Productivity Gains Add To Case for Rate Cuts

Workers were much businesslike successful nan 2nd quarter, perchance allowing abstraction for wages to proceed increasing without putting excessively overmuch upward unit connected inflation.

Labor productivity accrued 2.3% successful nan 2024 2nd 4th from nan anterior quarter, Bureau of Labor Statistics information showed, amended than nan 0.4% summation successful nan first quarter. Economists surveyed by The Wall Street Journal and Dow Jones Newswires had forecast a much humble summation of 1.8%.

"The firming successful productivity maturation is notable because it has scope to amended nan economy's imaginable complaint of growth," wrote Wells Fargo economists Sarah House, Michael Pugliese, and Nicole Cervi.

Labor productivity measures economical output against nan number of hours worked. If labour productivity is growing, it usually leads to accrued economical growth, since much is produced complete nan aforesaid magnitude of time.

Productivity measurements are only now getting backmost successful bid aft pandemic-era hiring trends helped skew nan index. The wide layoffs astatine nan onset of nan pandemic and consequent rehirings distorted nan data.

Lower Labor Costs Point To Declining Inflation

The study besides showed that labour costs slowed to levels not seen successful astir 5 years—another motion that ostentation is trending lower.

Unit labour costs, aliases what it costs businesses to nutrient 1 portion of its product, were higher by 0.9% successful nan 2nd quarter. Compared pinch nan aforesaid play a twelvemonth ago, labour costs were higher by 0.5%, which is nan slowest year-over-year labour costs maturation since nan 2019 3rd quarter. 

“This suggests reduced unit connected services ostentation ahead, an important measurement to bring wide ostentation backmost to trend,” wrote Ben Ayers, Nationwide elder economist. 

Wells Fargo economists said nan summation successful productivity helped little portion labour costs, which on pinch nan little readings successful nan recently-released Employment Cost Index, “adds further grounds that ostentation pressures from nan labour marketplace are easing.”

The productivity study should supply nan Federal Reserve pinch much information that ostentation is moving lower, expanding nan likelihood that nan cardinal slope would cut liking rates astatine its September meeting. 

“The acceleration successful productivity and corresponding slowing successful portion labour costs amid a gradually cooling U.S. labour marketplace support nan lawsuit for nan Fed to trim liking rates successful September,” wrote BMO Senior Economist Jay Hawkins.