The rebound of labor productivity in the second quarter is another sign of why the economy will continue to be on strong footing despite growing concerns over a labor market slowdown.
The second quarter’s labor productivity growth was 2.3%, the Labor Department reported on Thursday. Not only did the increase exceed expectations but it also marked the fourth time in five quarters that it surpassed 2%, a feat reminiscent of the 1990s when the economy achieved a rare soft landing amid a historic productivity boost.
The current increase in productivity is the result of billions of dollars in investments that businesses have made during one of the most aggressive rate hike campaigns in U.S. history.
Elevated inflation, labor shortages and supply chain disruptions all helped drive the surge in productivity-enhancing investments.
We should be confident that this rising productivity will continue, given that there are still billions of dollars from the government waiting to be deployed in key sectors over the next five to 10 years.
Read more of RSM’s insights into productivity, the economy and the middle market.
Jobless claims
Looking at more recent labor data, initial jobless claims spiked last week on a seasonal basis to 249,000, while the nonseasonal reading fell. The spike was most likely driven by the increase in Michigan jobless claims, which is reported on a nonseasonal basis.
The significant increase in claims should raise some eyebrows, as it was only 1,000 new claims away from our recession threshold of 250,000. Still, with seasonal factors still affecting the data, we should not overreact to one week of volatility.
If there is a reason to be concerned, it is continuing claims, where more workers remained on unemployment benefits as jobs seemed to be harder to find. Continuing claims increased to 1.877 million from 1.844 million. That was the highest level of continuing claims since 2021.
The takeaway
Putting both productivity and jobless claims reports together, there are more reasons for the Federal Reserve to recalibrate its two-sided risks in the coming months. Inflation risks are reducing faster than expected while risks to job growth are also rising.