The US experienced the first drop in labor productivity in three years, and a sharp rise in employment costs sounded a wake-up call for inflation

The Zhitong Finance App learned that labor productivity in the US declined for the first time in nearly three years in the first quarter. Due to the decline in economic output, the previous trend of improving efficiency that helped ease inflationary pressure on employment costs was interrupted. According to data from the US Bureau of Labor Statistics on Thursday, the hourly output of non-farm workers fell 0.8% annualized, and the previous value was revised to an increase of 1.7%.

The decline in labor productivity caused unit labor costs (expenses paid by enterprises to employees for the output of production units) soared 5.7% from January to March, the biggest increase in a year.

US productivity falls for the first time since 2022

The decline in productivity is mainly due to a 0.3% drop in corporate output. Last week's GDP data already predicted contraction due to trade factors, despite an increase in working hours. In the short term, productivity growth is likely to continue to be pressured by suspending investment plans until companies wait for more clarity on US trade and tax policies.

In addition to seeking fair bilateral trade and strengthening national industrial security, the Trump administration is stimulating domestic manufacturing and investment through tariffs. After the pandemic, increased productivity and surging immigration were seen as key factors driving economic growth and curbing inflation.

Federal Reserve officials are closely watching this data, as productivity increases brought about by technological upgrades, including artificial intelligence, can help curb wage inflation.

Labor costs are the biggest expense of most companies, so companies often seek new technology and equipment upgrades to improve efficiency and ease inflationary pressure caused by wage increases.

The report shows that working hours increased by 0.6% in the first quarter, and the hourly wage growth rate accelerated. A number of other wage indicators showed a slowdown in growth, confirming Federal Reserve Chairman Powell's judgment that the labor market is no longer a source of inflationary pressure.

Although high borrowing costs, ongoing inflation, and economic uncertainty have forced some companies to invest selectively, many companies are still improving efficiency. The data showed that manufacturing productivity soared 4.5% annualized, the biggest increase in nearly four years. Factory output surged 5.1%, or reflected an increase in commercial aircraft production.

Another data on Thursday showed that the number of initial jobless claims in the US fell to 228,000 last week, indicating that layoffs are still limited.