1Q Productivity Up 1.7%

Washington, DC, May 3, 2007--Productivity rose in the first quarter at an annual rate of 1.7 percent, compared with a 2.1 percent increase in the fourth quarter, according to a report from the Labor Department.

Economists were expecting an increase productivity growth at an annual rate of 0.7 percent.

Labor costs, adjusted for productivity, rose at a lower-than-forecast 0.6 percent pace after jumping 6.2 percent in the fourth quarter.

The economy created 455,000 jobs last quarter even as growth slowed to the weakest pace in four years, signaling efficiency had cooled. The slowdown in labor costs may ease concern companies would have to boost prices and raises speculation inflation will moderate.

For the 12 months ended in March, productivity rose 1.1 percent, down from a 1.6 percent year-over-year gain the previous quarter. Labor costs rose 1.3 percent from March 2006, compared with a 3.4 percent increase in the 12 months through December.

Compensation per hour worked rose at an annual rate of 2.3 percent in the first quarter, compared with an 8.5 percent gain in the prior three months.

Hours worked fell at a 0.3 percent pace last quarter, compared with a 0.8 percent increase in the previous three months. Output rose at a 1.4 percent rate last quarter, less than the 2.9 percent rate the government reported for the fourth quarter.

In the manufacturers sector productivity increased at a 2.7 percent rate in the fourth quarter, after a 1.9 percent rate the prior three months. Productivity at non-financial corporations, a measure watched by the Fed, rose at a 1 percent rate in the fourth quarter, down from a 4.1 percent third-quarter gain. These figures are released with a one-quarter lag.

Productivity grew just 1.6 percent last year after expanding 2.1 percent in 2005. Efficiency rose an average 3.2 percent per year from 2000 through 2005.