U.S. Q1 productivity growth revised to 2.8 pct

WASHINGTON, June 3 (Reuters) - U.S. non-farm productivity growth was much slower than initially estimated in the first quarter, government data showed on Thursday, as businesses started adding workers to maintain output.

The Labor Department said non-farm productivity rose at a 2.8 percent annual rate, instead of the previously reported 3.6 percent pace. It was the smallest advance in a year, following a 6.3 percent growth pace in the fourth quarter.

Analysts polled by Reuters had forecast productivity, which measures the hourly output per worker, rising at a 3.4 percent rate in the January-March period.

Following a rapid expansion in the previous three quarters as businesses squeezed more output from a small group of workers, productivity is slowing down and analysts expect the trend to continue as companies increase payrolls.

Some companies have held off hiring new workers, opting instead to add hours for the existing workforce, but analysts believe this policy cannot be adopted indefinitely.

The economy grew at an annual pace of 3.0 percent in the first quarter, slowing from a 5.6 percent rate in the fourth quarter.

Total non-farm output grew at a 4.0 percent rate in the January-March period, rather than the 4.4 percent pace previously reported, after a robust 7.0 percent pace in the fourth quarter, the Labor Department said.

Hours worked increased at a 1.1 percent rate, instead of 0.8 percent. The increase in hours was the highest since the second quarter of 2007 and marked an acceleration from the 0.7 percent pace in the fourth quarter.

Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, fell a less steep1.3 percent rather than 1.6 percent. That follows a 7.8 percent drop in the fourth quarter.

Analysts had expected unit labor costs to fall 1.4 percent in the first quarter.

Weak unit labor costs still pointed to muted inflation pressures and augur well for the U.S. central bank's pledge to keep benchmark interest rates low for an extended period (Reporting by Lucia Mutikani; Editing by Andrea Ricci)