US Productivity Falls in Q4 Missing 1 Percent Gain Estimate

U.S. worker productivity unexpectedly fell in the fourth quarter, the first decline since early 2016 and an indication that it be difficult to boost annual economic growth to 3 percent on a sustainable basis.

The Labor Department said on Thursday nonfarm productivity, which measures hourly output per worker, fell at a 0.1 percent annualized rate in the October-December period. That was the first drop and weakest performance since the first quarter of 2016.

Third-quarter productivity was revised to show it rising at a pace of 2.7 percent instead of the previously reported 3.0 percent rate. Compared to the fourth quarter of 2016, productivity increased at a rate of 1.1 percent.

Economists polled by Reuters had forecast productivity rising at a 1.0 percent pace in the fourth quarter.

Productivity increased 1.2 percent in the 2017, the strongest performance since 2015, after dipping 0.1 percent in 2016.

Economists blame soft productivity on a shortage of workers, which could be an obstacle to faster economic growth. The Trump administration has slashed income taxes as it seeks to lift annual economic growth to 3.0 percent.

Other economists also argue that low capital expenditures, which they say has resulted in a sharp drop in the capital-to-labor ratio, is holding down productivity.

There is cautious optimism that the sharp reduction in the corporate income tax rate to 21 percent from 35 percent will boost capital expenditures. Annual economic growth has not surpassed 3.0 percent since 2005. Gross domestic product expanded 2.3 percent in 2017.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza