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May 2, 2019 1:45 PM, EDT

First-Quarter Productivity Rises 3.6% in Fastest Pace Since 2014

Luke Sharrett/Bloomberg News

Productivity gains in the United States accelerated by more than expected last quarter to the fastest pace since 2014, adding fuel to the Trump administration’s argument that its tax cuts are boosting the economy without stoking inflation.

Nonfarm business employee output per hour increased at a 3.6% annualized rate in the January-March period, according to Labor Department figures May 2. That topped all forecasts in Bloomberg’s survey of economists and followed a downwardly revised 1.3% gain in the fourth quarter. Unit labor costs fell at a 0.9% rate after a 2.5% increase.

The pickup partly reflects faster economic growth, which hit 3.2% in the first quarter. Inflation also cooled during the period. President Donald Trump has said muted price gains call for the Federal Reserve to inject monetary stimulus so the economy can take off like a “rocket.” It will still probably take more time to determine whether productivity is enjoying persistent increases after relatively slow gains throughout the current expansion, with an average of 1.3% from 2007 to 2018.

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Fed Chairman Jerome Powell on May 1 brushed aside pressure for an interest-rate cut and said productivity is partly driven by technology developments and very hard to predict. The May 2 report showed output rose at a 4.1% pace, while hours worked increased 0.5%, the gain was last slower in 2015. The U.S. jobs report May 3 is forecast to show wages churned higher in April. Increasing productivity suggests the economy can grow at a faster pace without spurring a big jump in inflation.