U.S. productivity soared in the second quarter, but economists say the unexpected gains won’t protect the economy from the tough times ahead.

U.S. productivity for the second quarter came in up 2.5%, well ahead of consensus expectations for a 1.5% rise. “A solid performance given the slowing U.S. growth rate,” concedes BMO Nesbitt Burns.

However, it observes that manufacturing productivity actually fell 0.2% for the quarter, and gains amounted to a sluggish 1.9% over the last four quarters, “much below the pace of recent years”.

Despite the unexpectedly strong backwards-looking result, BMO Nesbitt Burns sees tough times coming. “Companies have been reluctant to fire workers so soon after tight labour markets made finding skilled employees the number one challenge firms faced. But the tight labour market reality has changed, and additional layoffs lie ahead,” it says.

“Companies have to get the pace of unit labour costs below the ongoing rate of price increase to restore an upward trend to profit margins. At 2.1% in Q2, unit costs were still rising faster than the 1.7% rate of increase in prices. We expect to see unit costs gains slashed further during the second half of the year.”

Although, it notes, “Cooling labour markets underpinned the slowest rise in compensation since 1999 in Q2. This is good news for inflation, and, with a bit more cost control, also potentially good news for profits.”