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Productivity, Labor Costs Rise More Than Expected

U.S. nonfarm productivity rose more than expected in the second quarter as companies expanded output but only modestly increased the hours worked by their employees, data from the Labor Department showed on Wednesday.

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Productivity climbed at a faster-than-expected 1.6 percent annual rate between April and June.

The still-modest reading could be a sign that companies will have to step up hiring to keep up with production, said Jeremy Lawson, an economist at BNP Paribas in New York.

"The pace of productivity growth is relatively soft at the moment. It's hard to add production on a faster pace without adding more workers," he said.

In the same report, the government said productivity rose 0.7 percent last year, more than the initially estimated advance of 0.4 percent. In another revision, productivity declined less than initially thought in the first quarter of 2012, the Labor Department said.

Analysts polled by Reuters had expected productivity to increase at a 1.3 percent annual rate during the second quarter.

U.S. stocks dipped in low volume following three days of gains on Wall Street as traders awaited more signals of central bank action to support a stalling global economy. The yield on the benchmark 10-year U.S. Treasury note was about flat.

Output increased at a 2.0 percent rate during the second quarter, but hours worked only rose at a 0.4 percent rate, the department said.

Using several years of recently revised data on economic growth, the government also said productivity did not rise quite as much as initially thought in 2010. Employers slashed payrolls during the 2007-09 recession, helping fuel a temporary spike in productivity. The increase faded last year.

The Labor Department report also showed unit labor costs climbing 1.7 percent during the period, a faster pace than the 0.6 percent gain expected by economists polled by Reuters.

Economists said that only pointed to modest inflation pressures that would not ring any alarm bells at the U.S. Federal Reserve.

"From a Fed labor costs-based view of the inflation process, there is nothing of concern in these data," RDQ economists said in a note to clients.

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