U.S. Productivity Jumped to Best Pace in Three Years After Trump’s Metals Tariffs Kicked In

US President Donald Trump tours US Steel's Granite City Works steel mill in Granite C
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U.S. worker productivity increased at the best quarterly pace in more than three years in the quarter after the Trump administration’s tariffs on steel and aluminum kicked-in, date from the Labor Department showed Thursday

The productivity of nonfarm workers rose at an annualized and seasonally adjusted rate of 2.9 percent in the second quarter of 2018, the Department of Labor said Thursday. Productivity measures the output of goods and services for each hour worked.

That is the best quarterly growth rate since the first three months of 2015.

The good news on productivity is all the more notable because the hours worked was revised up from an initial reading released last month. That would have been a drag on productivity if output were not also revised up. The combination suggests an economy that is still gaining strength.

Productivity lagged in the first quarter, increasing just 1.3 percent. The reversal of the sluggishness coincided with the implementation of the Trump administration’s tariffs on steel and aluminum in late March.

The manufacturing sector’s productivity was revised up to an increase of 1.5 percent from a  previously reported increase of 0.9 percent. Output increased 3.0 percent and hours worked grew 1.5 percent. That represents a dramatic turnaround from the start of the year, when manufacturing productivity fell 1.2 percent, as hours worked rose by 2.9 percent but output increased just 1.7 percent.

Durable goods manufacturing, which is particularly exposed to tariffs, rose 1.1 percent, as output rose 2.9 percent and hours worked rose 1.8 percent. In the prior quarter, this fell 0.8 percent, as hours worked grew by more than output.

The revival of productivity growth, particularly in manufacturing, defies predictions of economists who said that rising tariffs would hurt U.S. productivity by shifting resources into less productive U.S. businesses protected by trade barriers.

On a year-over-year basis, productivity advanced 1.3 percent, reflecting a 3.6 percent increase in output and a 2.3 percent increase in hours worked. That too indicates economic acceleration.


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