Biggest U.S. Productivity Drop in Decades Sends Ugly Omen

In this March 26, 2014 picture, Jon Wyand works on a truck engine assembly line at Volvo Trucks' powertrain manufacturing facility in Hagerstown, Md. The Commerce Department releases first-quarter gross domestic product on Wednesday, April 30, 2014. (AP Photo/Patrick Semansky)
In this March 26, 2014 picture, Jon Wyand works on a truck engine assembly line at Volvo Trucks' powertrain manufacturing facility in Hagerstown, Md. The Commerce Department releases first-quarter gross domestic product on Wednesday, April 30, 2014. (AP Photo/Patrick Semansky)
In this March 26, 2014 picture, Jon Wyand works on a truck engine assembly line at Volvo Trucks’ powertrain manufacturing facility in Hagerstown, Md. (AP Photo/Patrick Semansky)

 

(Bloomberg) – Productivity over the past six months fell by the most in more than two decades, leading to increases in U.S. labor costs that threaten corporate profits.

The measure of employee output per hour decreased at a 1.9 percent annualized rate after a revised 2.1 percent drop in the prior three months, a Labor Department report showed Wednesday in Washington. The decline on average over the past two quarters was the biggest since the first six months of 1993. Expenses per worker increased more than projected at the start of the year.

A lack of business investment in new technology may mean productivity will continue to languish and limit the economic expansion’s potential. Rising labor costs without offsetting increases in efficiency would also hurt business earnings, and in turn restrain the hiring that would propel consumer spending.

“Dividends from the tech boom and tech investment are petering out,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, the top productivity forecaster over the past two years, according to data compiled by Bloomberg. “Rising wages aren’t a problem if you have rising productivity. When that isn’t happening and wages are moving higher, it comes out of firms’ pockets.”

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