Productivity Rose 3.6% in Q1, Labor Department Says

In an analyst note by Ian Shepherdson, chief U.S. economist at High Frequency Economics, the 20-year average for productivity is 2.4%, so the average gain of 7.2% during the surge of the past three quarters was unsustainable.

For all of 2009, productivity, the amount of output per hour of work, rose at a 3.7% rate, nearly double the 2% increase in 2008. It was the fastest annual increase in productivity in seven years.

Shepherdson, writing about that jump in productivity, stated, “Companies addressed the post-Lehman collapse in the economy with a massive wave of layoffs; with demand now picking up, albeit modestly, they need to hire again. The good news for businesses is that unit labor costs are still falling and will likely do so all year, just. That means no inflation threat from the labor market–deflation is the bigger risk–and no give-back of the recent margin expansion.”