2Q Productivity Up Less Than Expected 1.8%

Washington, DC, August 7, 2007--Productivity in the second-quarter rose at an annual rate of 1.8% after a revised 0.7% gain in the first quarter, according to the Labor Department.

Unit labor costs increased at a 2.1% pace during the quarter and were up 4.5% in the 12 months ended in June, the most in almost seven years.

Economists had forecast a 2% rate of increase in productivity during the quarter.  Unit labor costs were projected to rise at a 1.8% pace.

Last quarter's figures were overshadowed by revisions spanning the past three years that trimmed efficiency gains and boosted costs. Coming ahead of today's Federal Reserve meeting, the report may reinforce concern among some policy makers that the decade-long productivity surge that helped curb inflation is fading.

The Labor Department's revised figures showed productivity rose 1% in 2006, down from a previously estimated 1.6% gain. Efficiency in the previous two years was also trimmed. Labor costs, which account for about two-thirds of the cost of producing a good or service, rose 2.9% in 2006, down from a previous estimate of 3.3%.

Hourly compensation rose at an annual rate of 3.9% in the second-quarter, compared with a 3.7% rate in the prior three months.

Productivity at non-financial corporations, a measure watched by the Fed, rose at a 0.2% rate in the first quarter. The figures are released with a one-quarter lag.

The second-quarter gains in productivity reflected a pickup in economic growth that's unlikely to be matched in coming quarters, economists said. The economy grew at a 3.4% pace, the most in a year, following a 0.6% gain in the January to March period.