Full Employment
Economists blame soft productivity on a shortage of workers as baby boomers retire as well as on the impact of rampant drug addiction in some parts of the country. A report on Tuesday showed job openings surging to a record 6.2 million in June.
The International Monetary Fund in June cut its growth forecasts for the U.S. economy to 2.1 percent for both 2017 and 2018. The IMF said the Trump administration was unlikely to achieve its 3 percent growth goal over a sustained period, partly because the labor market is at full employment.
Other economists also argue that low capital expenditure, which they say has resulted in a sharp drop in the capital-to-labor ratio, is holding down productivity.
There is also a perception that productivity is being inaccurately measured, especially on the information technology side. Annual economic growth has not surpassed 3 percent or more since 2005. Gross domestic product expanded at a 2.6 percent annualized rate in the second quarter.
Low productivity has also been blamed for sluggish wage growth even as companies continue to hire more workers to maintain output, pushing the labor market near full employment.
Hours worked increased at a rate of 2.5 percent in the April-June period, the quickest pace since the fourth quarter of 2015, and followed a 1.6 percent pace increase in the first quarter. As a result, output per worker surged at a 3.4 percent rate, the fastest since the first quarter of 2015, after rising at a 1.8 percent pace at the start of the year.
A separate report on Wednesday from the Commerce Department showed wholesale inventories rose 0.7 percent in June, the biggest gain in six months, as automobile stocks continued to increase amid declining sales. Wholesale inventories rose 0.6 percent in May.
This article was provided by Reuters.