U.S. nonfarm productivity fell more sharply than previously thought in the first quarter, leading to a jump in labor-related production costs, a trend that could spur a rapid increase in inflation.
Productivity dropped at a 3.1 percent annual rate instead of the previously reported 1.9 percent rate, the Labor Department said on Thursday. That was the first back-to-back fall in productivity since 2006.
Economists polled by Reuters had expected that productivity, which measures hourly output per worker, would be revised to show it falling at a 2.9 percent rate.
The decline mirrors the economy's dismal performance in the first quarter, when output shrunk at a 0.7 percent rate. Given that temporary factors contributed to the decline in output, the drop in productivity could be overstated and a rebound is likely in the second half of the year.
Still, weak productivity suggests that the economy's potential growth could be lower than the 1.5 percent to 2.0 percent pace that economists are currently estimating.