U.S. Workers More Productive in 1Q -- But Just Barely

worker productivity economy economic growth
Patrick Semansky/AP

WASHINGTON -- U.S. worker productivity barely grew from January through March after shrinking in the final three months of 2012. Weak productivity growth could prompt employers to hire more if consumers and businesses continue to increase spending.

The Labor Department said Thursday that productivity rose at a seasonally adjusted annual rate of 0.7 percent in the first quarter, after shrinking 1.7 percent in the previous quarter.

Labor costs increased at a seasonally adjusted annual rate of 0.5 percent, below the fourth quarter's 4.4 percent gain.

Productivity is the amount of output per hour of work. It increased because output rose at a faster pace than hours worked.

The trend in productivity has been fairly weak in recent years. For all of 2012, productivity rose just 0.7 percent, after an even smaller 0.6 percent rise in 2011.

Those gains were less than half the average growth in 2009 and 2010, shortly after many companies laid off workers to cut costs during the Great Recession. And it's below the long-run trend of 2.2 percent growth a year dating back to 1947.

With productivity growth slow, companies might have to add workers if demand for their products continue to grow. The economy expanded at a 2.5 percent annual rate from January through March, up from just 0.4 percent in the previous quarter. The increase was mostly driven by the fastest consumer spending in more than two years.

But most economists expect higher Social Security taxes have started to weigh on consumers. That should slow economic growth in the second and third quarters.

The Federal Reserve closely monitors productivity and labor costs for any signs that inflation is affecting wages. Mild inflation has allowed the central bank to keep interest rates at record lows in an effort to boost economic growth and fight high unemployment.

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Productivity is a fine thing when there is a labor shortage, but it's a two edged sword. Rising productivity means employers are getting the same or more work from fewer workers; great for the bottom line, not for the unemployed.

May 02 2013 at 2:58 PM Report abuse rate up rate down Reply