Ahead of the Bell: US productivity

US productivity expected to show further weakness in first quarter

Associated Press
US productivity falls at 2.2 percent rate in fourth quarter
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In this Sept. 19, 2014 photo, Adolfo Garzon cuts pieces for body armor at the Point Blank Body Armor factory in Pompano Beach, Fla. The Labor Department releases fourth-quarter productivity data on Thursday, March 5, 2015. (AP Photo/J Pat Carter)

WASHINGTON (AP) -- The Labor Department issues a revised estimate for productivity in the first quarter on Thursday at 8:30 a.m. Eastern.

PRODUCTIVITY DOWN: The expectation is that productivity fell at an annual rate of 2.8 percent in the first three months of the year, according to a survey of economists by data firm FactSet. The economists believe labor costs rose at a rate of 5.7 percent in the first quarter.

SLOW EFFICIENCY GAINS: Productivity is the amount of output per hour of work. In its initial report, the government said that productivity fell at a 1.9 percent rate in the first quarter while labor costs rose at a 5 percent rate.

Both of those estimates are expected to be revised lower because the government last week lowered its estimate of how the overall economy performed in the January-March quarter. It initially had reported that the gross domestic product, the country's total output of goods and services, edged up by a slight 0.2 percent rate in the first quarter.

But that figure was lowed to show total output, as measured by the GDP, actually contracted at an annual rate of 0.7 percent in the first quarter.

Economists expect the overall economy to rebound in the current April-June quarter as the effects of a harsh winter and other temporary impacts fade.

Productivity is the key determinant for rising living standards. Increases in efficiency allow employers to pay higher wages based on greater output without having to raise the price of their products, which can trigger inflation. There is concern about a slowdown in productivity growth that has been evident recently and economists are split over whether this is a short-term development or could be a longer-term problem.

The Federal Reserve keeps a close watch on productivity and labor costs to see if inflation pressures are intensifying. So far, however, the long-term rise in labor costs has been well below the level that would set off inflation alarm bells at the central bank.

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