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Productivity Rose Faster than Expected in First Quarter

U.S. productivity grew at a slightly faster-than-expected 2.6 percent annual rate during the first quarter on stronger output than was initially gauged, government data on Wednesday showed.

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conomists polled by Reuters had expected non-farm productivity, which measures the hourly output per worker, to increase at a 2.5 percent pace, compared with a previously estimated 2.2 percent rate.

Compared with the first quarter of 2007, non-farm productivity was up 3.3 percent, the quickest pace in nearly four years.

The Labor Department said first quarter output was revised higher to show a 0.7 percent gain at an annual rate, from 0.4 percent previously reported. Worker hours shrank 1.8 percent as businesses cut back on labor inputs to shield profits amid a cooling U.S. economy. It was the third straight quarterly decline in hours.

Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, rose by 2.2 percent at an annual pace, faster than the 2.0 percent rate forecast by analysts.

Compensation per hour rose at a 4.9 percent pace, but adjusted for inflation is was just 0.6 percent.

Aggressive cuts in worker hours will help shield corporate profits and keep wage-related cost pressures under control, helping to reassure the Fed.

The U.S. central bank monitors productivity for clues to inflation pressure over the business cycle, which also reflects the lag between business output and labor input. Non-farm productivity increased at an average annual rate of 2.7 percent from 2000 to 2006, the Labor Department said.

Unit labor costs rose a modest 0.7 percent year-on-year, the smallest rise since the second quarter of 2004. Compensation stood 4.0 percent higher over the year, but actually shrank 0.1 percent once adjusted for inflation.

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