**U.S. Productivity Falls for Second Straight Quarter**
**Rapidly rising labor costs add to inflation pressures as the Federal Reserve attempts to slow price increases**
**By Jeffrey Sparshott, The Wall Street Journal, Aug. 9, 2022**
**U.S. labor productivity declined for the second consecutive quarter as overall economic output contracted and employers spent more on labor as they added workers....**
**U.S. nonfarm labor productivity — a measure of goods and services produced in the U.S. per hour worked — fell at a seasonally adjusted annual rate of 4.6% in the second quarter from the prior quarter...Unit labor costs, a measure of worker compensation and productivity, increased at a 10.8% pace in the second quarter from the prior quarter...Quarterly productivity figures are volatile, but the weak second-quarter number follows a 7.4% pullback in the first quarter, the sharpest drop in 74 years. ...**
**Rising productivity is the key to improving living standards; it allows companies to raise wages without raising prices and fueling inflation. Instead, businesses appear to be paying workers more to produce less. The higher unit labor costs suggest companies will either endure lower profits or pass on higher costs to consumers....** [end quote]
Labor productivity is volatile but it’s clearly looking bad since 2020. It hasn’t looked this bad since the recessions of 1973-74 and 1980-82.
Average hourly earnings grew 5.2% in July from a year earlier, and annual wage gains have exceeded 5% each month this year. This is slower than the growth of inflation so real wages are falling although the burden on employers is growing.
This is a double whammy for the stock market. The Fed will be continue to raise the fed funds rate to try to control inflation. Meanwhile, lower productivity and higher labor costs will reduce corporate earnings.