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Reuters Edge

INSTANT VIEW 2-U.S. Q1 productivity up 1.0 pct

NEW YORK (Reuters) - U.S. worker productivity grew at a slower than first estimated 1.0 percent annualized pace during the first quarter as the economy just inched ahead, driving up labor costs by 1.8 percent and backing fears inflation remains a concern, a government report on Wednesday showed.

Economists polled ahead of the Labor Department report revised down their forecasts for productivity, expecting non-farm productivity to advance by 1.1 percent and unit labor costs to rise by a bigger 1.2 percent.

COMMENTARY:

SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR &

ASSOCIATES, TORONTO:

“When you have rising labor costs and much lower productivity than earlier in the cycle, that has to have some effect on profit margins ... So there are two issues: one is macro, which is inflation still looks stubborn, I think that’s what Mr. (Federal Reserve Chairman Ben) Bernanke was trying to say yesterday. But the other underlying issue going into second quarter earnings, is that the productivity numbers and the labor costs to me suggest that profit margins have peaked out. I’ve been expecting that earnings at some point will come in below expectations, that hasn’t happened so far in this cycle, but I think we’re getting set up for that.”

NIGEL GAULT, CHIEF U.S. ECONOMIST, GLOBAL INSIGHT, WALTHAM,

MASSACHUSETTS:

“It indicates growth was not so great in the first quarter and that went straight into productivity. Unit labor costs are running 2.2 percent on a year-over-year basis and that understates the rate of increase. The underlying trend is 3 percent or a bit above 3 percent.

“As far as the Fed is concerned, they are not going to be surprised, but this reminds them that wage pressure is still the number one inflation risk, at least domestically.”

DOUG ROBERTS, CHIEF INVESTMENT STRATEGIST, CHANNEL CAPITAL

RESEARCH, SHREWSBURY, NEW JERSEY:

“Right now, what this confirms is really Bernanke’s comments yesterday and the ISM data that the economy may have reached a short-term bottom and therefore seems to be strengthening. The increase in productivity supports that theme and also possibly indicates that any upward wage pressure could be justified by productivity increases thus relieving possible core inflation pressure. All eyes are really on the ECB and Trichet’s comments regarding the future. Productivity is really a secondary item.”

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