U.S. Productivity Surges in 1st Quarter

The productivity of U.S. workers surged in the first quarter, highlighting the economy’s competitiveness in its ninth year of expansion and easing fears of inflation. The Labor Department said productivity, measuring workers’ hourly output of goods and services, rose at a 4% annual rate in the quarter ended in March. That was a slight slowdown from the 4.3% gain in the fourth quarter. But the overall performance was remarkably strong, especially for the advanced stage of the business cycle, when productivity growth is typically much more subdued. Economists were expecting a much smaller advance of 3%. Unit-labor costs, a key gauge of wage inflation, rose a slight 0.3% in the first quarter, after a 0.4% drop in the previous quarter. Economists had expected a larger gain of 0.5%. But workers pocketed a solid rise in inflation-adjusted pay. Real compensation per hour rose 2.8% in the first quarter, up from 2.2% in the previous quarter. Federal Reserve Chairman Alan Greenspan last week acknowledged that productivity has performed well recently, but he expressed concern that inflationary pressures might start to build in the tightest labor market in a generation. The first-quarter productivity growth might provide some reassurance to Greenspan and his colleagues on the rate-setting Federal Open Market Committee. The panel meets next Tuesday to deliberate interest rates.