Productivity growth slows in 1st quarter

AP News
Posted: Jun 02, 2011 9:40 AM
Productivity growth slows in 1st quarter

U.S. companies squeezed more work out of their staffs in the first three months of the year. But the gains are slowing, suggesting employers may need to hire more workers if they want to produce more goods and services.

Worker productivity rose at an annual rate of 1.8 percent in the January-March quarter, the Labor Department said Thursday. That's a slight upward revision from the government's first estimate of 1.6 percent. But it is significantly lower than the 2.9 percent growth rate in the final three months of last year.

Unit labor costs rose at a 0.7 percent rate, down from an initial estimate of 1 percent growth.

Productivity is a measure of the amount of output per hour of work. A slowdown in productivity growth is bad for the economy if it persists for a long period. But it can be good in the short term when unemployment is high. It could mean companies are reaching the limits on how much extra output they can get from their existing work forces.

Worker output grew 3.9 percent in 2010, the biggest increase in eight years. But many economists believe it will slow to just half that pace this year. The expectation is that companies will hire more workers to boost output further.

Job growth has been strong so far this year. It's averaged a net total of 233,000 per month since February. And the unemployment rate has tumbled from 9.8 percent in November to 9 percent in April.

But high energy prices have slowed economic growth. Weaker data over the past month have led many economists to lower their forecasts for May job growth. That figure will be reported on Friday.

Companies found ways during the recession to produce more goods and services with fewer workers. They slashed millions of jobs during the downturn.

The Federal Reserve watches productivity and unit labor costs carefully. Increases in productivity allow companies to pay workers more without being forced to boost the prices of their products, which can cause inflation.

Because of the high levels of unemployment, workers have not had the bargaining power to demand higher wages. Unit labor costs have fallen for two consecutive rises. Even though analysts are looking for an increase in labor costs this year, they believe it will be only a slight gain.