U.S. Worker Productivity Fell by 0.9% in First Quarter

By MARTIN CRUTSINGER

WASHINGTON -- U.S. worker productivity fell by the largest amount in a year from January through March. The steeper drop than first estimated suggests companies would need to hire more if demand were to pick up.

The Labor Department said Wednesday that productivity fell at an annual rate of 0.9% in the first quarter. That's faster than the 0.5% annual decline first estimated last month.

Labor costs rose 1.3%, down from an initial estimate of 2%. Compensation costs were smaller.

Productivity is the amount of output per hour of work. It fell at a faster rate than first estimated because revisions showed less output and slightly more hours worked.

The report was the government's second and final look at first-quarter productivity.

Last week, the government said the economy grew at an annual rate of 1.9% in the January-March quarter, slightly slower than its initial estimate of 2.2%.

A decline in productivity could be good news for job seekers. It could show that companies are struggling to squeeze more output from their workers and must hire if demand rises.

But so far, companies have signaled a much different message. Employers added just 69,000 jobs in May, the fewest in a year, and just 77,000 in April. That's a sharp decline from the 226,000 jobs created per month in the first quarter.

"Going forward, the big question is the rate of gain in output growth. If it remains slow, as we feel likely, productivity gains will continue to be constrained," said Joshua Shapiro, chief U.S. economist at MFR Inc.

Productivity grew last year at the slowest pace in nearly a quarter century after rising sharply in 2010. The main reason productivity soared in 2010 was that it followed the worst recession in decades, when employers laid off millions of workers.

Economists said the trend is typical during and after a recession. Companies tend to shed workers in the face of falling demand and increase output from a smaller work force. Once the economy starts to grow, demand rises and companies eventually must add workers if they want to keep up.

Economists expect productivity growth will remain weak this year. Economists at JPMorgan (JPM) are forecasting productivity will rise 0.7% this year as companies add more workers.

With so many people out of work and looking for jobs, there is little chance that wage pressure will get out of hand, economists note.