After five quarters of growth, worker productivity fell in the second quarter by 0.9%, according to the Bureau of Labor Statistics. Even though this news sounds bad, there might not be any reason to worry yet. Productivity can't grow as steeply as it has recently forever, so a decline was inevitable. Indeed, economists expected it to fall by 0.4%, so the reported decline was only a little lower. Yet it might have been better if unemployment had declined more before productivity began falling. Let's take a closer look at today's numbers.
First, it's useful to see just how steeply productivity had grown since the first quarter of 2009:
You can see how much more quickly this rise was than what was seen historically. This sort of growth isn't sustainable. Despite the small quarterly decline, productivity remains quite high.
In the context of recession-driven unemployment, productivity growth is normal. This indicates that businesses wait to hire more workers until they're more confident that a recovery has begun. You can see this in the following chart, which shows the unemployment rate and the rate of productivity growth (or decline):
Wherever you see a peak in the red unemployment line, you can usually spot a peak in productivity nearby. In fact, as unemployment declines, so does productivity. Productivity growth has been steadily declining since the first quarter of 2009, but it went negative in the second quarter of this year.