Productivity: Sharp Increase As Cycle Troughs

Bottom Line: The Bureau of Labor Statistics reported an even stronger-than-expected rebound in productivity, the first increase yearly increase since 4Q21,  as output increased 2.4% and hours worked decreased 1.3% annualized in the 2nd Quarter. The decline in hours worked was the first decline since the second quarter of 2020 and was the result of a 1.3% decline in average weekly hours while employment was steady. Overall, continued growth in output with notably lower wage pressures has increased productivity and turned the trend modestly higher. The economy is coming through the late stages of the typical productivity trough --- we expect slower hours worked in the quarters ahead with still modestly positive growth. That should allow productivity growth to near its pre-pandemic trend rate of 1-1.5%.