U.S. worker productivity rebounded much more than expected and hourly compensation grew solidly in the first three months of the year, data from the Labor Department showed Thursday, the latest sign that the economy was recovering at a stronger pace than expected prior to the Biden administration’s stimulus efforts.
U.S. nonfarm productivity, which measures hourly output per worker, rose at a 5.4 percent annual rate in the first quarter. Analysts polled by Econoday had predicted a 3.7 percent gain.
Overall economist output rose by 8.6 percent while hour worked rose by 2.9 percent in the first quarter.
The picture painted by Thursday’s release is one of an economy that has nearly returned to pre-pandemic levels of output. Overall output is now only 0.6 percent below the level seen in the fourth quarter of 2019, the last quarter free of the influence of the pandemic. The hours worked index is 4.3 percent lower than it was in the fourth quarter of 2019,
Most of the gains came before the Biden Administration’s “American Rescue Plan” was enacted. In fact, by the end of March, only the direct payments of up to $1,400 to individuals had reached the private sector—and very little of those had gone further than the bank accounts into which they were deposited.
Productivity contracted in the last quarter of 2020 by 3.8 percent, the Labor Department said. That was a smaller contraction than the 4.2 percent in the previous estimate. That contraction appears to have occurred by an influx of new workers hired on as economies reopened and retailers brought on workers for holiday shopping. Productivity often falls when employers are hiring many workers, especially to lower-productivity retail and hospitality positions.
Hours worked increased at a 10 percent pace in the fourth quarter of 2020. In the most recent quarter, hour worked climbed at a 2.9 percent pace.
Compared to the first quarter of 2020, productivity rose at a 4.1 percent pace.
Hourly compensation rose at a 5.1 percent rate in the January through March period, following a 1.6 percent growth rate in the previous three months. Compensation increased at a 5.8 percent rate compared with the first three months of 2020.
Manufacturing sector labor productivity increased 0.1 percent in the first quarter of 2021, as output increased 2.4 percent and hours worked increased 2.3 percent. Manufacturing productivity increased 2.2 percent from the same quarter a year ago. Output is now 2.0 percent below the fourth quarter of 2019. Hours worked are 4.6 percent below the fourth-quarter 2019 level.
Durable goods productivity rose 0.7 percent in the first quarter of 2021, reflecting a 4.6-percent increase in output and a 3.9-percent increase in hours worked.
The better-than-expected growth in compensation and productivity cast doubt on the necessity of the $1.9 trillion stimulus bill passed in March. The data also add to the growing body of evidence that the economy does not need additional boosts from the so-called “American Jobs Plan” or the “American Families Plan.”
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