Productivity rises to 2.5 percent in second quarter. Good, but 'could have been better'

Productivity of American workers grew to an annualized 2.5 percent, more than most economists expected, according to data released Friday by the BLS. The increase in productivity is a good sign for the US economy.

The productivity of US workers made modest gains during the second quarter of this year.

Nonfarm business sector labor productivity increased at a 2.5 percent annual rate in the second quarter, according to a report by the US Bureau of Labor Statistics (BLS), released Friday. The increase comes after a revised 4.5 percent decrease in the prior three months, which was the biggest decline since the fourth quarter of 1981. The growth was higher than the 1.6 percent economists had expected, according to a Bloomberg survey.

The number of hours US workers worked increased at a 2.7 percent annualized rate, up 2 percent from 2013, and output increased at a 5.2 percent annualized rate, up 3.2 percent from last year.

"This is a good number reflecting the second quarter rebound in overall economic growth, but it could have been better," Doug Handler, chief US economist at IHS Global Insight, said in an e-mailed statement. 

Unit labor cost, or the amount of money needed to create one unit of output, grew at a 0.6 percent annualized rate, up 1.9 percent from a year ago. The manufacturing sector had a good quarter – productivity in the industry increased at 3.6 percent in the second quarter, and the cost of manufacturing goods also fell 1.3 percent in the quarter.

"Overall, we view the rise in compensation and unit labor costs revealed in this report as a modestly positive influence on core inflation in coming months," Dean Maki, chief US economist for Barclays, said in a statement.  

Looking forward, Joshua Shapiro, chief US economist the economic consulting firm MFR, said in an e-mailed analysis that the growth seen in the second quarter might be as good as it gets. "[W]ith output unlikely to sustain the rapid pace posted in [second quarter], and payrolls expanding at a pretty solid clip, it is unlikely that we are going to see productivity growing at any more than a modest pace on a trend basis in the quarters ahead." 

As experts continue to analyze the data, the US Federal Reserve is preparing to end its bond purchasing program in October. During a June policy meeting, the Fed began detailing plans to ease the US economy off the asset purchasing policy, which has been supporting economic growth.

By mid-morning, the Dow had jumped almost a hundred points to 16,448.