U.S. companies are facing a toxic combination of dismal productivity growth, accelerating wages and sluggish demand, raising the risk they will slow hiring, cut spending further and weaken an already-fragile economy.
Labor productivity, or the amount of goods and services employees produce per hour worked, fell at a 0.6% annual rate in the first quarter, the Labor Department said Tuesday. The drop, while less steep than initially estimated, extended a troubling slowdown that has hindered the economy’s ability to lift Americans’ living standards.
Stronger productivity boosts corporate profits, giving firms more money to pay their workers. Productivity grew an average 2.2% since World War II but has expanded just 0.5% over the last five years. Only in the five years through late 1982 has it grown as slowly.
Meanwhile, workers’ hours and compensation are accelerating, suggesting the labor market is at near or a level of employment deemed to be healthy without stoking too much inflation.
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