Washington – The productivity of American workers slowed sharply in the first three months of this year and wage pressures rose faster than expected, raising inflation concerns on Wall Street.
The Labor Department reported Wednesday that the amount of output per hour of work for nonfarm businesses rose at annual rate of 1 percent in the January-March quarter. That was the slowest advance since the third quarter of last year and was below the government’s initial estimate that productivity rose at a 1.7 percent rate in the first quarter.
Labor costs rose at an annual rate of 1.8 percent. That was up from an initial estimate of 0.6 percent growth in unit labor costs and was higher than the 1.3 percent increase Wall Street had been expecting.
Stocks fell for a second straight session as the worse- than-expected jump in labor costs stirred inflation concerns.
The Dow Jones industrial average dropped 129.79 points to close at 13,465.67.
Economists, however, were not as concerned by the labor- cost reading, noting that it still reflected a significant slowdown after an 8.9 percent rate of increase in the final three months of last year. That gain was attributed to big end-of-year bonus payments.
“The growth of compensation is not accelerating,” said Brian Bethune, an economist at Global Insight, a private forecasting firm. “This issue should not cause any unnecessary ruffling of feathers over at the Federal Reserve.”
While higher wages are good for workers, increases that outstrip the growth of productivity can trigger unwanted inflation as employers are forced to boost the cost of their products to meet their higher payroll costs.
Rising productivity means employers can boost salaries because of workers’ increased efficiency. It is the single most important factor supporting rising living standards.
The revision to productivity in the first quarter reflected the sharp downward revision to overall economic growth, which got slashed to 0.6 percent from an initial estimate of 1.3 percent.
The Fed pushed interest rates higher for two years in an effort to slow the economy and keep inflation under control.
