(Adds Fed meeting, analyst comment, market reaction)
WASHINGTON Aug 9 U.S. nonfarm productivity
fell in the second quarter as economic activity slackened,
while a moderation in the pace of unit labor costs growth
suggested inflation pressures will remain contained.
Productivity slipped at a 0.3 percent annual rate, the
Labor Department said on Tuesday, after falling at a revised
0.6 percent pace in the first quarter.
Economists had expected productivity to drop at a 0.8
percent rate. Revisions to prior quarters showed productivity
growth was slightly stronger in 2010 than earlier reported.
"This suggests businesses have largely exhausted the
efficiency enhancing measures that resulted in impressive
average annual productivity growth of 3.3 percent over the last
two years," said Paul Dales, senior U.S. economist at Capital
Economics in Toronto.
U.S. financial markets were unmoved by the data as
investors awaited a Federal Reserve policy statement around
2:15 p.m. (1815 GMT).
The Fed is holding a one-day regular policy meeting on
Tuesday. Most analysts do not expect the U.S. central bank to
make any major changes in policy at the meeting.
The slowdown in productivity mirrors a sharp slowdown in
economic growth during the first half of the year, which has
raised fears the economy could slide into recession. The
economy grew at a 1.3 percent annual rate in the second quarter
after a meager 0.4 percent rise in the January-March period.
Normally, a slowdown in productivity implies that
businesses have to add new workers to meet production, but
against the backdrop of weak economic growth, it suggests
businesses might have to cut costs to protect profits.
"If demand remains weak, there is a danger that businesses
may try to boost productivity by cutting jobs," said Dales.
Productivity -- which measures hourly output per worker -
grew rapidly as the economy emerged from the 2007-09 recession,
peaking at an 8.0 percent growth rate in the second quarter of
2009. The gains were driven by companies' cutting costs,
particularly for labor.
The productivity report showed unit labor costs grew at a
2.2 percent rate in the second quarter, which was slower than
the 4.8 percent pace in the first quarter. Revisions showed
unit labor costs contracted more sharply in 2010 than
Economists had expected unit labor costs to rise 2.3
percent in the second quarter.
(Reporting by Lucia Mutikani, Editing by Andrea Ricci)