U.S. productivity falls 0.9% in 1Q as growth cools

THE PRODUCTIVITY of U.S. workers fell more than initially estimated in the first quarter as labor costs climbed, indicating companies may pause before bringing on new employees.
Posted 6/6/12

WASHINGTON - The productivity of U.S. workers fell more than initially estimated in the first quarter as labor costs climbed, indicating companies may pause before bringing on new employees.

The measure of employee output per hour decreased at a 0.9 percent annual rate, after a 1.2 percent gain in the prior three months, revised figures from the Labor Department showed today in Washington. Expenses per worker rose at a 1.3 percent rate and output grew 2.4 percent, less than previously estimated.

The drop in productivity at the start of the year helps explain why payroll gains in May were the weakest in a year. Slower U.S. growth combined with European economies on the verge of recession shows why companies may cut back worker hours and become more deliberate in their hiring as they seek to protect profit margins.

“If demand remains weak, employers will push the existing workforce harder to boost productivity,” Brian Jones, a senior U.S. economist at Societe Generale in New York, said before the report. “We think you’re going to see slower growth, and the breadth of hiring, at least according to purchasing managers, is the weakest it’s been since last December.”

First-quarter productivity was projected to decrease 0.8 percent after a previously reported 0.5 percent decline, according to the median forecast of 59 economists surveyed by Bloomberg News. Estimates ranged from a decline of 1.1 percent to no change.

Unit labor costs, which are adjusted for productivity gains, were forecast to rise 2.1 percent in the January to March period, the survey median showed. Employment costs dropped 1.5 percent in the final three months of 2011, previously reported as a 2.7 percent increase.

Wages and salaries

The fourth-quarter revision to labor expenses reflected updated figures on worker pay. Wages and salaries rose by $28.9 billion in the final three months of 2012, less than the $89.1 billion gain previously reported, the Commerce Department said May 31.

The gain in first-quarter output was the smallest in a year and followed a 3.7 percent gain in the fourth quarter, the revised figures showed.

Hours worked increased at a 3.3 percent pace from January through March, more than first estimated, after a 2.4 percent rise in the prior quarter. Compensation for each hour worked climbed at 0.4 percent annual pace.

Adjusted for inflation, compensation dropped at a 2 percent pace last quarter, following a 1.6 percent decrease in the previous three months.

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