Winter's chill sends US productivity reeling as labor costs skyrocket

Mike Kane | Bloomberg | Getty Images

U.S. nonfarm productivity fell at its fastest pace in a year in the first quarter as severe weather took its toll, leading to the largest gain in unit labor costs in more than a year.

Productivity declined at a 1.7 percent annual rate after advancing at a 2.3 percent pace in the fourth quarter, the Labor Department said on Wednesday. It was the biggest drop since the first quarter of 2013.

The fall in productivity, which measures hourly output per worker, was in tandem with a weather-driven sharp weakness in the economy during the January-March period. An unusually cold and snowy winter reduced hours for some workers.

Economists polled by Reuters had forecast productivity falling at a 1.0 percent rate.

First-quarter gross domestic product rose at a 0.1 percent annual rate, the government said in its advance estimate last week, abruptly slowing from the fourth quarter's 2.6 percent rate.

The trend in productivity, however, remains modestly up. Compared to the first quarter of 2013, productivity increased 1.4 percent.

Growth in output braked to a 0.3 percent rate in the first-quarter, also the weakest pace in a year. Output had increased at a 3.8 percent rate in the fourth quarter.

With output slowing sharply because of the adverse weather conditions the cost of labor jumped.

Unit labor costs, the price of labor per single unit of output, surged at a 4.2 percent rate after falling at a 0.4 percent rate in the fourth quarter. It was the biggest rise in unit labor costs since the fourth quarter of 2012.

Economists polled by Reuters had expected unit labor costs to increase at a 2.6 percent rate. Despite the rise last quarter, there was little sign that wage inflation was igniting.

Unit labor costs rose only 0.9 percent compared to the first quarter of 2013.

--By Reuters