Rise in Worker Productivity Slows Down

U.S. worker productivity rose in the first quarter at the slowest pace in more than a year, the government said Thursday, as the number of hours employees spent on the job surged and businesses grappled with shortages of job applicants.

Productivity rose 0.2% at an annual rate in the first quarter, the Labor Department said. Analysts had expected a 0.6% increase. In the fourth quarter, productivity rose a revised 1.4%, initially estimated as a 1.6% advance.

Unit labor costs rose at a 3.8% rate in the first quarter after increasing at that same rate in the fourth quarter, the report said.

If slower productivity growth were to persist, it would cause concern at the Federal Reserve, said Kevin Flanagan, an economist at Morgan Stanley Dean Witter. Improvements in productivity during the last few years “have been keeping labor costs in place,” Flanagan said. “That’s something the Fed will be paying attention to.”

A separate Labor Department report showed that first-time claims for state unemployment benefits unexpectedly declined by 11,000 last week to a seasonally adjusted 308,000, suggesting fired workers were not having trouble getting rehired.

Jobless claims had held unchanged at 319,000 for the previous two weeks. The less volatile four-week moving average for new jobless claims also declined.

In other signs the economy could grow faster than the Fed would prefer, the Commerce Department said wholesale inventories and sales both increased in March. And the nation’s retailers reporting results for April said sales at stores open at least a year beat expectations.

The only sign of weakness was a smaller-than-expected increase in March consumer credit. Analysts said that may simply reflect the fact more people are paying with cash rather than holding back on purchases.

Borrowing rose $1 billion in March to $1.242 trillion, the weakest increase in four months, Fed figures showed.