COLORADO SPRINGS — The Department of Labor released challenging data that will make it even harder for the Federal Reserve regarding interest rates.

Tatiana Bailey explains that the productivity rate and employers having to pay more to fill jobs paint some dark clouds for the economy at large.

Quarter two worker productivity declined again at a 4.6% annualized rate, which is on the heels of a decline in the first quarter of this year. Productivity can fluctuate a bit from quarter to quarter. However, the overall trend over the past year is negative productivity growth.

According to Bailey lower productivity means lower U.S. productivity and global competitiveness. The Federal Reserve is trying to weed through all the conflicting economic data in order to make good decisions about interest rate hikes, which are happening because of inflation.

Bailey says the other issue is the data from the Small Business Survey, the survey shows that employers are still having a tough time with the labor market. Forty-nine percent reported job openings that they could not fill. Forty-eight percent have raised compensation with 25% planning to raise compensation in the next three months.

Bailey says if the businesses are having to pay more for labor but worker productivity and therefore the output is down, businesses are having to pay labor more to produce less. Businesses may have to hold off on any expansion plans, cool off on hiring, and maybe even lay off workers.

However Bailey adds, that many workers have quit their jobs and started new ones, July added 528,000 new jobs. It takes time for new workers to reach their full productivity potential, so there is a possibility for productivity to improve. The question is whether it will be quick enough to avoid a wage-price spiral where businesses have to keep increasing prices in order to pay for the labor that they need.

“That is the dilemma for the Federal Reserve, as well as for the economy at large,” says Bailey.