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Q1 Worker Productivity Fell By 7.5%, Biggest Drop Since 1947

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The leader holds his finger down over the team. dismissal of an employee | Q1 Worker Productivity Fell By 7.5%, Biggest Drop Since 1947 | featured

During the first quarter of 2022, US worker productivity recorded its fastest pace in nearly 75 years. According to the Bureau of Labor Statistics, worker output fell by 7.5% from January to March. This is the biggest decline in productivity since the third quarter of 1947.

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Worker Productivity Drops by 7.5% From January to March 2022

Bored business man sitting in front of two laptop computers | Worker Productivity Drops by 7.5% From January to March 2022

US worker productivity dropped by 7.5% from January to March 2022. The Department of Labor attributed the decline to soaring labor costs and surging COVID cases.

In particular, nonfarm productivity declined by 7.5% during this period. This is the biggest drop recorded since 1947.  Worker productivity is a metric that measures output against the number of hours worked.

On a yearly basis, worker output fell by 0.6% compared to a year-ago level. 

Meanwhile, unit labor costs surged by 11.6%. This brought the total rate of increase to 7.2% for the last four quarters. The 7.2% increase in labor costs is also the fastest rise since the third quarter of 1982.

Unit labor costs are a metric that calculates how much employers pay workers in salary and benefits per unit of output.

Worker Productivity and Unit Labor Costs Show Effect of Inflation Surge

Both numbers beat Wall Street forecasts for the quarter. Analysts expected a mere 5.2% drop in productivity. They also hoped for a more modest increase in labor costs at 10.5%.

However, the actual numbers went over both estimates. Together, falling worker productivity and unit labor costs mean that inflation remains to surge in the US.

Prices of goods and services are climbing higher, especially fuel and food. In fact, March registered an 8.5% increase compared to year-ago levels. This is the fastest rate of increase in inflation in more than 40 years. 

The high inflation rate triggered the Federal Reserve to raise the interest rate twice already this year. At present, the federal funds rate stands between 0.75% to 1.0%.

In contrast, interest rates hovered near zero during the previous two years. The Fed plans to raise interest rates further by 50 basis points increments throughout 2022.

The agency hopes to tame inflation by making it more difficult for companies and consumers to borrow money. 

Jobless Claims Rise to 200,000

In addition, a separate Labor Department report showed that jobless claims increased to 200,000 during the week ending April 30.

This is 19,000 higher than the previous week and 18,000 higher than Wall Street’s 182,000 forecasts. Continuing claims, which register a week behind jobless claims, fell by 19,000 to 1.38 million. This is the lowest number of weekly jobless claims since January 1970. 

Lower worker productivity shows that a number of factors converged in the decline. The fact that the US economy contracted by 1.4% during the period showed the signs of a troubled economy.

The Russia-Ukraine war, uncontrolled inflation, worker shortages, and a renewed COVID surge all combined to pummel the economy.

However, the Fed, as well as many economists, expect growth to make a comeback later this year. Federal Reserve Chairman Jerome Powell said he remains optimistic.

He still sees the US in a strong position to make a recovery. However, high inflation remains the biggest problem the country must hurdle. 

Watch the CNBC Television news video reporting that Q1 productivity falls 7.5% as labor costs soar:

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What do you think about the decline in worker productivity and labor output cost? Is this another sign of a troubled US economy? What should the government do to address faltering worker productivity? 

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1 Comment

  • Tim Stewart says:

    On the manufacturing side, workers cannot produce when they can’t get materials with which they build a product. Result, lower productivity. Well trained employees are “job jumping”. This leaves us filling positions with untrained or less efficient workers. Result, lowered productivity. Younger employees have been indoctrinated into the culture of “companies are bad” by teachers who have never started a business of any kind and provide zero jobs. Result, no loyalty or sense of responsibility and “lowered productivity”.

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