Wednesday, June 6, 2007

Productivity Revised Lower As Unit Labor Costs Rose


WASHINGTON -- U.S. productivity in the first quarter grew at a rate lower than originally estimated, while unit labor costs rose more than expected and were also adjusted higher for the prior quarter.

Nonfarm business productivity climbed at an unsurprising 1% rate between January and March compared to the prior quarter, the Labor Department said Wednesday, down from an initially estimated 1.7% increase.

Fourth-quarter productivity was unrevised at an increase of 2.1%. Productivity is output divided by hours worked.

Wall Street wasn't surprised by the 1% first-quarter increase. The median estimate of 24 economists surveyed by Dow Jones Newswires was a 1.0% gain.

Unit labor costs -- a gauge of inflationary pressures -- rose by 1.8% in the first quarter, up from the prior estimate of 0.6%. Fourth-quarter costs rose 8.9%, adjusted from a previously estimated 6.2% increase. Economists had forecast a 1.5% climb in unit labor costs for January through March.

Labor is the most important cost to production of goods and services. If not matched by productivity, higher labor costs must be either passed through by a company in the form of higher prices to its customers or absorbed in the firm's profit margins.

The Labor Department report Wednesday said nonfarm business output grew 0.6% during the first quarter compared to the fourth quarter, down from the previous estimate of a 1.4% climb. Hours worked fell 0.4%.

Hourly compensation increased 2.8%. Real compensation, adjusted for inflation, declined 1.0%. Manufacturing productivity increased 2.4% in the first quarter, down from the prior estimate of a 2.7% advance. Nonfinancial corporate sector productivity rose 0.6% in the first quarter.

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