U.S. worker productivity falls in second quarter, causing annual decline

American workers’ productivity slipped in the April-June quarter, feeding into a 12-month decline in how much people are producing for each hour worked.

Productivity fell at an annual rate of 0.5% in the second quarter after a 0.6% drop during the first three months of the year, the Labor Department said Tuesday. Over the last 12 months, productivity has dropped 0.4%, as labor costs and the hours worked are rising faster than the output of workers’ goods and services. Unit labor costs rose 2% in the second quarter, after decreasing 0.2% in the first quarter.

Productivity has been weak for the last five years, a thorny problem because productivity growth is the key factor supporting rising living standards and higher incomes. The decline corresponds with a U.S. economy in which overall economic growth has been sluggish while hiring has been relatively robust.

The economy expanded at an annual pace of 1% during the first six months of the year. The growth rate is about half the already tepid average of the seven-year recovery from the Great Recession.

Yet hiring has been remarkably solid with employers adding 255,000 jobs in July and 292,000 jobs in June, as the unemployment rate has held at a healthy 4.9%, the Labor Department said last week. The rise in labor costs indicates that worker pay is finally climbing after a prolonged phase of anemic wage gains.