Productivity grows at surprising clip

WASHINGTON (Reuters) - Business productivity grew a greater-than-expected 1.7 percent in the first three months of 2007 but labor costs rose far less than forecast, a Labor Department report showed on Thursday.

Analysts were expecting business productivity, a measure of how much any given worker can produce in an hour, to rise by 1 percent in the first quarter.

Productivity advanced by 2.1 percent in the fourth quarter of last year, revised up from the previously reported 1.6 percent gain.

Unit labor costs grew by 0.6 percent in the first three months of the year, well below the 4 percent rise analysts were expecting. It was the weakest showing since labor costs fell 2.5 percent in the second quarter of 2006.

The rise in unit labor costs in the first quarter was much slower than the 6.2 percent increase in the fourth quarter of 2006, which was originally reported as a 6.6 percent gain.

Productivity advanced by a scant 1.6 percent in all of 2006, the smallest gain since 1997, while unit labor costs grew by 3.1 percent, the biggest increase since 2000.

Federal Reserve officials have been concerned slowing productivity could push up wage inflation amid tight labor markets. But they also have said the slowdown in productivity is likely to be temporary rather than a sign that U.S. workers have lost their competitive edge.