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Economic Report: U.S. productivity tumbles again in second quarter, labor costs up sharply

The numbers: U.S. nonfarm worker productivity fell at a 4.6% annual clip in the second quarter, the government said Tuesday.

Economists surveyed by MarketWatch had projected a 4.3% decline.

This is the second straight decline quarterly decline in productivity, which measures output per hour. In the first quarter, productivity fell at a steep 7.4% rate, the largest decline in 75 years.

Over the past 12 months, U.S. productivity fell at a record 2.5% rate.

Key details: Workers worked more and produced less in the second quarter. Hours worked ran a 2.6% rate in the second quarter, down from a 5.3% rate in first quarter.

Output in the second quarter fell at a 2.1% rate after a 2.5% decline in the first three months of the year.

Unit-labor costs, a key measure of wages,  jumped at 10.6% rate down only slightly from a revised 12.8% rate in the first quarter

Year-over-year unit labor costs rose 9.5% in the second quarter up from a robust 8.2% gain in the first quarter. 

Big picture: Productivity is hard to measure in normal times, so economists are wary of the data in the post-pandemic era. Still, economists are troubled because productivity low productivity leads to a host of bad outcomes – higher inflation, lower worker wage growth and a slower economy, said Nela Richardson, chief economist at ADP.

Market reaction: Stocks
DJIA,
+0.09%

SPX,
-0.12%

were set to open lower on Tuesday after oil futures turned higher on news reports that Russia was halting crude flows on one pipeline to Europe.

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