US productivity slumped for a second-straight quarter as the economy shrank, driving another surge in labor costs that risks keeping inflation elevated and further complicates the Federal Reserve’s efforts to tame price increases.
Productivity, or nonfarm business employee output per hour, decreased at a 4.6% annual rate in the second quarter after falling at a 7.4% pace in the previous three months, Labor Department figures showed Tuesday.
That marked the weakest back-to-back readings in data back to 1947. On a year-over-year basis, output per hour fell by the most on record.
With the drop in productivity, unit labor costs jumped at a 10.8% rate in the second quarter from the prior three months. The increase from a year earlier was the biggest since 1982.
Labor costs are the biggest expense for many businesses, so firms often adopt new technologies and upgrade equipment to make their workers more productive, helping blunt the inflationary impact of higher wages.
However, labor costs are outstripping the central bank’s inflation goal by nearly five times on an annual basis, suggesting sustained upward pressure on consumer prices and ultimately making the Fed’s inflation fight more difficult.
