/Economic Report: U.S. productivity falls for the first time in almost four years

Economic Report: U.S. productivity falls for the first time in almost four years

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Workers were less productive in the third quarter.

The numbers: The productivity of American workers fell in the third quarter for the first time in almost four years, reflecting a cutback in production as the U.S. economy slowed toward the end of summer.

Productivity declined at a 0.3% annual rate from July to September, the government said Wednesday. It fell a somewhat smaller 0.1% among American manufacturers.

Economists surveyed by MarketWatch had predicted a 0.6% increase in productivity.

The drop in productivity might be just temporary if the economy speeds up again, but it could also be a warning sign. Businesses reduced production in response to softer demand, especially for exports. The trade war between the U.S. and China has disrupted global supply chains and contributed to a worldwide slowdown in economic growth.

Read: U.S. manufacturers still suffering from China trade fight, tepid global economy

What happened: Companies increased the amount of goods and services they produced, known as output, by a solid 2.1%.

Yet the hours workers spent on the job rose an even faster 2.4%, the Bureau of Labor Statistics said Wednesday. Productivity is determined by the difference between output and hours worked.

Unit-labor costs, meanwhile, rose at a 3.6% annual rate. Over the past year these costs have climbed 3.1%, the highest year-over-year clip in more than five years.

All figures are seasonally adjusted.

Consumers keep U.S. economy plugging along, GDP shows

Big picture: Productivity had accelerated in the past several years as companies boosted investment, but the trade war with China has thrown a wrench in corporate-spending plans. It could be a problem for the U.S. economy if the trade war persists.

Without more business investment, productivity might continue to backslide. That’s not good for workers or businesses. Higher productivity is the key to a rising standard of living, resulting in higher pay, more profits and low inflation.

Low productivity is a sign of an inefficient economy. Productivity in the U.S. has risen at an average rate of just 1.3% since 2007, compared to a 2.1% average since the end of World War Two.

Read: Trade deficit falls to 5-month low as U.S. posts first oil surplus since at least 1978

Market reaction: The Dow Jones Industrial Average

DJIA, +0.11%

and S&P 500

SPX, -0.12%

were set to open higher in Wednesday trades. Both indexes have set fresh records in the past week on optimism on a break-through in U.S.-China trade talks.

Read: The economy is avoiding the worst potholes, but the U.S. isn’t ready to hit the gas

The 10-year Treasury yield

TMUBMUSD10Y, -1.90%

was little changed at 1.84%.

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