Productivity Up Slightly; Trade Deficit Widens

Two of the economy’s weak spots were highlighted Tuesday in reports showing that the U.S. trade deficit widened sharply in the second quarter and that growth in productivity, the key to rising living standards, showed only a modest increase.

The Commerce Department said the deficit in the current account, the broadest measure of U.S. trade, jumped to $38.8 billion in the April-June quarter, the worst showing in a year, as higher oil and merchandise imports swamped a big gain in U.S. farm exports.

Meanwhile, the Labor Department said productivity, the measure of output per hour of work, edged up at an anemic annual rate of 0.5% in the second quarter.

A month ago, the government’s preliminary estimate said second-quarter productivity had declined by 0.1%.

But analysts took little encouragement from the upward revision, saying there is no sign that the country is breaking out of the vise of stagnant productivity that has constrained personal incomes for more than two decades.

Productivity is viewed as the key to raising living standards. Higher productivity means workers are producing more per hour, allowing employers to reward them with wage increases without threatening higher inflation.

Compared with the small gain in productivity in the second quarter, Tuesday’s report shows that unit labor costs, which account for two-thirds of total production costs, were rising at an annual rate of 3.2%.

The second-quarter current account trade deficit was 11.2% higher than the first-quarter imbalance and left the current account deficit running at an annual rate of $147.3 billion, close to where it has been for the last two years.

A $1.9-billion gap in investment earnings also added to the deficit.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Productivity

Nonefarm business productivity, percentage change from previous quarter to annual rate, seasonally adusted:

‘96: 0.5%

Source: Labor Department

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Trade Deficit

U.S. current account, quaterly balance, in billions of dollars:

‘96: -$38.8

Source: Commerce Department