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US first-quarter unit labor costs are revised down sharply

Key Points
  • U.S. unit labor costs were weaker than initially thought in the first quarter and costs declined in the prior period.
  • The data suggested inflation could remain moderate for a while.
  • Productivity increased at a revised 3.4% rate in the first quarter.
A man using an angle grinder on a steel piece at a metal fabrication company on August 7, 2018 in Orange County, New York.
Waring Abbott | Getty Images

U.S. unit labor costs were weaker than initially thought in the first quarter and costs declined in the prior period, suggesting inflation could remain moderate for a while.

The Labor Department said on Thursday unit labor costs, the price of labor per single unit of output, dropped at a 1.6% annualized rate, instead of falling at a 0.9% as reported last month. Data for the fourth quarter was revised to show unit labor costs falling at a 0.4% rate in the October-December period, rather than increasing at a 2.5% pace as previously reported.

Compared to the first quarter of 2018, unit labor costs fell at a rate of 0.8%, revised down from the 0.1% increase estimated last month. Weak unit labor costs mirror tepid inflation readings, that have prompted calls, including from President Donald Trump, for the Federal Reserve to cut interest rates.

An improvement in worker productivity is helping to keeping unit labor costs subdued, despite a tightening labor market.

Productivity increased at a revised 3.4% rate in the first quarter. Productivity was previously reported to have accelerated at a 3.6% rate in the first three months of the year.