U.S. first-quarter productivity weakest in six years

WASHINGTON Wed Jun 4, 2014 8:44am EDT

WASHINGTON (Reuters) - U.S. non-farm productivity fell at its sharpest pace in six years in the first quarter as harsh winter weather depressed output, leading to a jump in labor-related production costs.

The Labor Department on Wednesday revised productivity data to show it tumbling at a 3.2 percent annual rate. That was the biggest drop since the first quarter of 2008. It had initially been reported falling at a 1.7 percent rate.

The drop in productivity, which mirrored a decline in economic growth during the same period, is likely temporary.

Economists had expected productivity, which measures hourly output per worker, would be revised down to show it contracting at a 2.7 percent pace.

It increased at a 2.3 percent pace in the fourth quarter.

The economy was slammed by an unusually cold winter and businesses accumulating inventories at a slower pace. There are signs, however, that growth has since rebounded.

Economists expect gross domestic product growth to top a 3.5 percent rate this quarter, after declining at a 1.0 percent pace in the first three months of the year.

The trend in productivity, however, remains modestly up. Compared to the first quarter of 2013, productivity increased 1.0 percent rather than 1.4 percent.

Workers put in more hours in the first quarter but with output falling, that raised labor costs. Unit labor costs, the price of labor per single unit of output, surged at a revised 5.7 percent rate.

It was the biggest rise in unit labor costs since the fourth quarter of 2012. Unit labor costs were previously reported to have increased at a 4.2 percent rate. They fell at a 0.6 percent rate in the fourth quarter.

Despite the jump last quarter, there was little sign that wage inflation was igniting. Unit labor costs rose by a revised 1.2 percent compared to the first quarter of 2013. They had previously been reported to have increased at a 0.9 percent rate.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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