May 4, 2017 9:00 AM, EDT

Productivity Falls by Most in a Year; Labor Costs Climb

Paul O'Driscoll/Bloomberg News

U.S. worker productivity declined in the first quarter by the most in a year as growth in the world’s largest economy weakened, a Labor Department report showed May 4.

Key Points

• The measure of employee output per hour decreased at a 0.6% annual rate (forecast was a 0.1% decline) after a revised 1.8% gain in the prior three months.

• Expenses per worker rose at a 3% pace (forecast was 2.7% increase) after a revised 1.3% gain.

Big Picture

The results reflect the first-quarter slowdown in the economy, which grew at the slowest pace in three years while the job market remained solid. The report underscores the challenge of achieving a sustained acceleration in productivity, which has been elusive through most of this expansion. As wages remained weak in recent years, businesses relied on new hires rather than more investment in efficiency-boosting technology, though that trend may change eventually as weak productivity erodes profits.

Other Details

• Productivity rose 1.1% from the first quarter of 2016; unit labor costs, which are adjusted for changes in efficiency, were up 2.8% from a year earlier.

• Adjusted for inflation, hourly compensation fell at a 0.8% rate last quarter, after no change in the fourth quarter.

• Output rose at a 1% rate, following a 2.7% gain in the fourth quarter.

• Hours worked increased at a 1.6% pace, after a 1% advance; compensation for each hour worked rose at a 2.4% annual pace.

• Latest drop in productivity compares with an average annual gain of 0.6% from 2012 through last year.

Among manufacturers, productivity rose at a 0.4% rate in the first quarter after a 2% gain.