Fed Inflation Challenge Made Harder by Q2 Productivity

Source: Economics Group of Wells Fargo Bank, N.A.

Summary

Nonfarm productivity declined at a 4.6% annualized rate in the second quarter, marking the second consecutive decline. The trend in productivity growth has worsened compared to prior to the pandemic, and the surge in unit labor costs makes the Fed’s challenge of getting inflation back down to its 2% target all the more challenging.

Even Through Recent Volatility, Productivity is Lower on Trend

Nonfarm productivity plunged at a 4.6% annualized rate in the second quarter as economic output declined for the second consecutive quarter (chart). The productivity estimates have been particularly volatile since the pandemic, and productivity for any given quarter should not be read into too deeply, given that output and hours worked can grow at wildly different paces in the short run. Nonfarm business output declined at a 2.1% annualized rate in the second quarter for example. READ FULL ARTICLE>>