Productivity Surges 2.3%, Beating Forecasts

The News

Productivity grew at a 2.3 percent annual rate in the second quarter, the U.S. Bureau of Labor Statistics reported on Thursday, surpassing economists’ expectations. The pickup was a major improvement upon the sluggish 0.4 percent rate in the first quarter. And on a yearly basis, productivity increased 2.7 percent. That far exceeds prepandemic averages.

Why It Matters: A key to prosperity.

A highly productive economy generally means businesses and workers are operating efficiently, making more money in fewer hours. In the second quarter, production was up 3.3 percent, while hours worked rose 1 percent.

On a less technical level, productivity is best explained by the old axiom of “doing more with less” or the folksy virtue of “getting the biggest bang for your buck.”

Economists tend to sigh with relief when they see productivity gains because it offers a potential “win-win” for workers, customers and business owners: If businesses can make more money in fewer work hours, then — according to basic economic logic — they can presumably make more dollars per hour, while also reinvesting and giving workers raises, without sacrificing profits.

Being able to make more with less (or with the same amount of labor and machinery) also means businesses may not feel as much pressure to set higher prices to push profits. That, too, is welcome news after a yearslong bout of inflation.

Facts to Keep in Mind: A volatile indicator.

Productivity, at a basic level, is calculated as a simple ratio: the total amount of output an economy produces per hour worked by its labor force. But the output side of the equation is adjusted for inflation on a quarterly basis. That can cause volatility, in both directions.