The April to June quarter has brought good tidings to the US economy after a grim showing in the first quarter figures. The productivity has increased and so did the labor costs.
The labor department released the productivity figures today which showed an increase of 2.5% after adjusting the annual rate seasonally. The productivity rates had plummeted by 4.5% in the first quarter. This fall was the steepest drop in 31 years and contributed to the 2.1 % contraction in the economy. Most economic experts felt that the contraction has been caused by temporary factors like bad weather and a cutback on stockpiling by businesses. Productivity is generally related to the living standards of the people. Better productivity enables the companies to pay its employees better and this leads to more spending without increasing the prices of goods which would have increased inflation.
The labor costs increased by 0.6% while it increased by 11.8% in the previous quarter. Labor costs had contracted in the second half of the previous year and in the last 12 months had increased by just 1.9% which is lower than the standard 2.8 %. It also suggests that wages and the pay checks are not increasing fast enough to lead to an increase in inflation. The Federal Reserve is also keeping a sharp eye on the productivity and labor costs to identify any possibility of acceleration in inflation.
In spite of a modest increase in the labor costs through most of the recovery period, the wages of the workers were barely adequate to keep up with inflation ever since the end of recession. In the past year, the productivity has increased by 1.2 % which is below the 2.2% which is considered healthy. Productivity has been slow in the last five years since the end of recession. Most analysts have no qualms in declaring that the US economy has not been able to grow quickly as it has done in the past.