Ahead of the Bell: US productivity

US productivity likely to slow further in revised estimate for first quarter

Associated Press
US productivity falls at 3.2 percent rate in 1Q
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In this Friday, May 16, 2014 photo, a construction worker works on the site of the SoMa at Brickell apartment building in downtown Miami. The Labor Department reports revised figures for productivity in the first quarter on Wednesday, June 4, 2014. (AP Photo/Lynne Sladky)

WASHINGTON (AP) -- The Labor Department reports revised figures for productivity in the January-March quarter. The report will be issued at 8:30 a.m. EDT Wednesday.

PRODUCTIVITY DOWN: The expectation is that productivity fell at an annual rate of 2.6 percent in the first quarter, according to a survey of economists by data firm FactSet.

WORKER EFFICIENCY: In the government's first look, productivity dropped 1.7 percent at an annual rate in the first quarter and labor costs rose at a 4.2 percent pace. Economists are looking for the rise in labor costs to be a more pronounced 5.1 percent rate in the revised estimate.

Productivity measures output per hour of work. Greater productivity increases living standards because it enables companies to pay their workers more without having to increases prices, which can boost inflation.

The drop in productivity reflects the hit the economy took in the first quarter. According to last week's revised estimate for total output, as measured by the gross domestic product, the economy actually shrank at an annual rate of 1 percent in the January-March period. That was weaker than the first estimate of GDP which showed a tiny 0.1 percent gain.

With total output being revised lower, economists believe productivity will show a bigger drop in the new estimate Wednesday.

The Federal Reserve keeps close watch on productivity and labor costs for any signs that inflation is threatening to rise to an unacceptable rate. But economists believe the Fed will see the first quarter weakness in productivity and rise in labor costs as temporary developments reflecting the harsh winter rather than an indication of the start of a worrisome trend.

Even with the first quarter spurt in labor costs, overall wage pressures remain mild, reflecting the long period it has taken the economy to regain the millions of jobs lost during the Great Recession.

Economists are looking for a rebound in economic growth in the April-June quarter to around 3.8 percent as warmer weather boosts consumer spending. They expect further job gains will lift incomes and spur consumer spending in the second half of the year when they are forecasting the economy will be growing at a solid annual rate of around 3 percent.

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