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First Quarter Productivity Highest Strongest Since 2014

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According to statistics released by the Labor Department today, U.S. productivity grew 3.6% in the first quarter, the strongest gain in over four years. Analysts are predicting that several years of weak gains in productivity may have come to an end, and the economy will continue to grow even as some are still fearful of a recession.

The growth was over twice that of the last quarter of 2018, which was 1.6%. Labor costs lowered at a rate of 0.9% for the year, .

Productivity over the past year has grown by 2.4%, the best four-quarter gain since 2010.

Gains over the past decade have been less than stellar. The average annual gain between 2007 and 2018 was just 1.3%, less than half the 2.7% gains seen from 2000 to 2007, a period when the economy was benefiting from technology improvements in computers and the internet.

Gains since 1947 have averaged 2.1%.

Recently, economists had called productivity slowdowns in the last decade as one of the country’s biggest challenges. Recent signs have indicated that’s changing. The two main factors of economic improvement, labor and productivity, have show great gains so far in 2019. Combined with the gross domestic product (GDP) improvements, President Trump may be well on the way to the 3.0% gains he predicted during his campaign.

In addition, the Labor Department reported that applications for unemployment benefits remained at 230,000 last week. the low number indicating a strong job market. The government will release its April jobs report on Friday, and it’s expected to show an unemployment rate of 3.8 %, the lowest nearly 50 years. Economists believe April job growth will remain strong.

“The rebound in productivity is restraining labor costs and keeping inflation in check,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “The improved production of workers more than offset the moderate gain in wages.”

Some economists believed the surge in productivity was partly driven by a 35-day partial shutdown of the federal government, which led to hours worked in the first quarter rising at their slowest pace in more than three years.

As such, they continued to estimate the speed at which the economy can grow over a long period without igniting inflation between 1.7 percent and 2.0 percent.

“One quarter does not make a trend, and we do not expect productivity growth to be sustained at the current level, but a gradual shift towards 1.5-2.0 percent seems plausible to us,” said Blerina Uruci, an economist at Barclays in Washington.

U.S. stocks were trading lower and yields on U.S. Treasuries were higher. The dollar rose slightly against a basket of currencies.

Sarah Morton

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