US productivity growth slows to 2.2 per cent rate in Q3

Economists had expected a slowdown in the third quarter given that overall output, as measured by the gross domestic product, slowed to a still-strong annual rate of 3.5 per cent in the April-June quarter after a sizzling 4.2 per cent growth rate in the second quarter. With less output and hours worked rising at a rate of 1.8 per cent, productivity edged lower.

Finding a solution to the slowdown in productivity growth is one of the key economic challenges facing the country. Rising productivity is critical to boosting standards of living because productivity gains allow companies to pay workers more without having to increase the cost of their products, which can be inflationary.

Economists are uncertain why productivity has remained static during a nine-year expansion. Some explanations include the difficulty of pulling out of the deep 2007-2009 recession and reluctance of companies to invest in new productivity-enhancing equipment.

Without a significant improvement in productivity, the Trump administration will find it difficult to achieve its goal of sustained GDP growth of 3 per cent or better each year. An economy’s potential for growth is determined by an expansion in the labour force, which is determined largely by birth rates and immigration, as well as the growth in productivity.

In a separate report, the Labor Department said that the number of Americans filing claims for unemployment benefits, a proxy for layoffs, dipped by 2,000 last week to 214,000, further evidence of a healthy labour market. The government will release the October unemployment report on Friday and the expectation is that the jobless rate will remain at a 49-year low of 3.7 per cent.

Martin Crutsinger, The Associated Press

by Canadian Press

US productivity growth slows to 2.2 per cent rate in Q3

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