US Q1 advance productivity down 1.0% vs. 1.4% drop expected

U.S. nonfarm productivity fell in the first quarter, the second quarterly decline, and labor-related costs rose at their fastest pace since 2014 as companies hired more workers to maintain output.

The Labor Department said on Wednesday productivity, which measures hourly output per worker, declined at a 1.0 percent annual rate.

Fourth-quarter productivity was revised up to show a 1.7 percent rate of decline instead of the previously reported 2.2 percent pace. Productivity has only risen in two of the last six quarters.

Economists polled by Reuters had forecast productivity falling at a 1.4 percent rate in the first quarter. Productivity rose at a 0.6 percent rate compared to the first quarter of 2015.

Weak productivity helps explain the divergence between lackluster economic growth and a fairly robust labor market.

Gross domestic product grew at a 0.5 percent rate in the first quarter, while employment gains averaged 209,333 jobs per month during that period.

Productivity increased at a annual rate of less than 1.0 percent in each of the last five years.

In a paper published last month, an economist at the Federal Reserve Bank of Kansas City attributed weak productivity to the changing industry mix, which has seen a shift from manufacturing and energy toward the production of services.

Soft productivity has significantly lowered the economy's long-run potential.

In the first quarter, hours worked rose at a 1.5 percent rate after rising at a 3.3 percent pace in the prior quarter.

Growth in unit labor costs, the price of labor per single unit of output, increased at a 4.1 percent pace, the quickest since the fourth quarter of 2014, from a 2.7 percent rate in the fourth quarter.

Still, the trend in labor cost increases remains moderate. Unit labor costs increased at a 2.3 percent compared to the first quarter of 2015. Compensation per hour increased at a 3.0 percent rate in the first quarter after advancing at a 0.9 percent pace in the fourth quarter.