US productivity grew at modest annual rate in 1Q


Productivity rose at a seasonally adjusted annual rate of 0.5 percent in the first quarter, following a 1.7 percent decline in the October to December period, the Labor Department said Wednesday.

The first quarter performance was revised down slightly from an initial estimate of a 0.7 percent first quarter increase. The revision reflected the fact that the government lowered its estimate of overall economic output in the first quarter from a rate of 2.5 percent down to 2.4 percent. Productivity is the amount of output per hour of work.

Labor costs actually fell in the January to March quarter, dropping at an annual rate of 4.3 percent after having surged at an 11.8 percent rate in the fourth quarter.

The trend in productivity has been fairly weak in recent years. For all of 2012, productivity rose just 0.7 percent, after an even smaller 0.6 percent rise in 2011.

Those gains were less than half the average growth in 2009 and 2010, shortly after many companies laid off workers to cut costs during the Great Recession. And it's below the long-run trend of 2.2 percent annual growth in productivity dating back to 1947.

With productivity growth slow, companies might have to add workers if demand for their products continue to grow.

The economy expanded at a 2.4 percent annual rate from January through March, up from just 0.4 percent in the previous quarter. The increase was mostly driven by the fastest consumer spending in more than two years.

But most economists expect higher Social Security taxes have started to weigh on consumers. That should slow economic growth in the second and third quarters.

The modest rise in labor costs means wages are not growing fast enough to spur concerns about inflation.

The Federal Reserve closely monitors productivity and labor costs for any signs that inflation could pick up. Mild inflation has allowed the central bank to keep short-term interest rates at record lows and buy bonds in an effort to push long-term interest rates down.

The Fed is seeking to boost consumer and business borrowing and spending as a way of boosting overall economic growth and fight high unemployment.

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