Productivity Increases in First Quarter

Washington, DC, May 7, 2009–Productivity rose in the first quarter as U.S. firms cut their workforce, outpacing the drop in output, the Labor Department reported Thursday.

Productivity in the nonfarm business sector – output per hour worked – rose at a seasonally adjusted annual rate of 0.8% in the quarter as output fell 8.2%, while hours worked fell 9% — the largest drop in hours since 1975.

Unit labor costs rose 3.3%, and real hourly compensation gained 6.6%.
Productivity gains are the key to higher living standards, higher wages, increased profits and low inflation.

Economists had expected no change in productivity, and a 3% gain in unit labor costs.

Within manufacturing, productivity fell 3.4%, while output fell a record 22.4% and hours declined a record 19.7%. The data go back to 1987. Unit labor costs in manufacturing rose 16.7%.

Compared with the first quarter in the prior year, productivity was up 1.8%, while unit labor costs rose 2.4%.

High productivity growth means the economy can grow rapidly without inflation, raising living standards and theoretically allowing workers to get big raises without hurting the boss’s profits.