BLS: 1Q productivity rises 1.7%,<br> beats analyst expectations

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WASHINGTON – Business and manufacturing productivity both increased in the first quarter while labor costs declined, according to a preliminary report released today by the U.S. Department of Labor’s Bureau of Labor Statistics.
At non-farm businesses, productivity – a measure of the value produced for each hour of work – rose in the first quarter at an annual rate of 1.7 percent, the BLS said, as non-farm business output increased 1.4 percent and hours worked declined 0.3 percent.
The rate was nearly double the 0.7-percent rate of change predicted in survey of 72 economists by Bloomberg News. But it lagged the fourth-quarter productivity gain of 2.1 percent.

Within the manufacturing sector, productivity rose by 2.7 percent in the first quarter – the slowest rate since the third quarter of 2004 – as output increased by 1.5 percent and hours worked declined by 1.1 percent. Hours and output in the manufacturing sector, which accounts for about 13 percent of U.S. business-sector employment, tend to vary more widely than in the broader economy, the BLS noted.
Hourly compensation increased by 2.3 percent in non-farm businesses and 5.5 percent in manufacturing, while unit labor costs rose by 0.6 percent and 2.7 percent, respectively, the BLS said. Real hourly compensation – after adjustment for inflation – declined 1.9 percent over the first quarter after rising 10.0 percent in the fourth quarter of 2006.
Unit labor costs rose 1.3 percent compared with March 2006, less than half the 3.8 percent increase predicted in the Bloomberg survey and far short of the fourth quarter’s 6.6-percent year-over-year gain.

“There’s a little relief,” Tim McGee, chief economist at U.S. Trust Corp. in New York, told Bloomberg. “The Fed will be happy that they’re seeing signs the economy isn’t continuing to deteriorate at the same time they’re getting good news on inflation.” Among those agreeing was Brian Bethune, an economist at Global Insight Inc. in Lexington, Mass., who said: “Given the economy has slowed down as much as it has, it’s an amazing performance.”

But some economists focused on slowing in year-over-year productivity gains, Bloomberg said. Compared with the first quarter of 2006, non-farm productivity rose by 1.1 percent, slowing from the fourth quarter’s year-over-year gain of 2.1 percent, the BLS said, while in the 12 months ended March 31, productivity increased by 1.1 percent, slowing from a year-over-year gain of 1.6 percent in the previous quarter.

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Additional information, including the 16-page Productivity and Costs report, is available at www.bea.gov/lpc.