U.S. non-farm productivity declined for the first time in 1-1/2 years during the second quarter this year and labor costs barely edged up, according to a Labor Department report on Tuesday that underlined a slowing pace of economic recovery. Productivity declined by an annual rate of 0.9% after rising at a revised 3.9% rate in the first quarter, the first time since the fourth quarter of 2008 that output per worker fell. Analysts surveyed by Reuters had forecast that productivity, a measure of hourly output per worker that is taken as an indicator of the economy's vitality or lack of it, would expand at a 0.2% annual rate in the second quarter and that unit labor costs would rise 1.3%.
Unit labor costs, a gauge of potential inflation pressures closely watched by the Federal Reserve, edged up at a 0.2% annual rate after shrinking at a revised 3.7% rate in the first three months this year. The weak productivity figure is in line with other broad signs that the economic recovery is losing momentum. The overall economy grew at only a 2.4% annual rate in the second quarter, down from a 3.7% rate in the first quarter.
Fed policymakers were holding a one-day meeting on Tuesday to consider interest-rate policy, but with rates already near zero the speculation was that the U.S. central bank may be mulling other fresh steps to stimulate the economy amid signs that inflation poses little or no current risk.