US productivity drops in first quarter; labor costs jump
9:10 am Thursday, May 04th, 2023
WASHINGTON (Reuters) – U.S. worker productivity fell more than expected in the first quarter after growing in the second half of 2022, boosting labor costs, which could see the Federal Reserve keeping interest rates higher for a while.
Nonfarm productivity, which measures hourly output per worker, dropped at a 2.7% annualized rate last quarter, the Labor Department said on Thursday. Data for the fourth quarter was revised slightly lower to show productivity growing at a 1.6% rate instead of the previously reported 1.7% pace.
Economists polled by Reuters had forecast productivity declining at a 1.8% rate. Productivity decreased at a 0.9% pace from a year ago. That marked the fifth quarter that productivity declined on a year-on-year basis.
Large shifts in the composition of the workforce in the wake of the COVID-19 pandemic have made it difficult to get a clear read of productivity.
Unit labor costs – the price of labor per single unit of output – surged at a 6.3% rate after increasing at a 3.3% pace in the fourth quarter. Unit labor costs rose at 5.8% rate from a year ago. Labor costs are rising too quickly to be consistent with the U.S. central bank’s 2% inflation target.
The Fed on Wednesday raised its benchmark overnight interest rate by another 25 basis points to the 5.00%-5.25% range on Wednesday, and signaled it might pause the U.S. central bank’s fastest monetary policy tightening campaign since the 1980s.
Some economists believe an anticipated recession this year could force the Fed to cut rates by December.
Hourly compensation increased at a 3.4% pace last quarter. Compensation advanced at a 4.9% rate in the October-December quarter. It grew at a 4.8% rate compared to the first quarter of 2022.
(Repotting reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
