Productivity revised up, labor costs containedPositive numbers...

Productivity revised up, labor costs contained
Positive numbers on productivity could temper recent inflation jitters.
June 1, 2006: 8:48 AM EDT


WASHINGTON (Reuters) - U.S. business productivity was stronger than first estimated in the first quarter of the year and labor cost pressures were much better contained, the government said on Thursday in a report that could temper inflation jitters in financial markets.

The Labor Department said nonfarm business productivity advanced at a revised 3.7 percent annual rate in the first three months of the year, compared to an initially reported 3.2 percent increase.



Unit labor costs, a key gauge of price and profit pressures, rose at only a 1.6 percent annual rate in the first quarter, a downward revision from the 2.5 percent gain reported last month. The department also revised fourth-quarter unit labor costs sharply lower to a 0.6 percent drop from the previously reported 3 percent rise.

Wall Street economists expected first-quarter productivity would be revised up to an even stronger 3.9 percent gain, but the downward revision to unit labor costs was sharper than anticipated. Economists had looked for unit labor costs, the cost of labor for any given unit of production, to increase at a 1.9 percent pace.

More complete source data on worker compensation lay behind the big revisions to the unit labor costs data.

The department said hourly compensation rose at a 5.3 percent pace in the first three months of the year, compared with the 5.7 percent gain first reported. Compensation actually dropped by 0.9 percent in the fourth quarter of last year, marking a big revision from the previously reported 2.7 percent rise.

The better-contained unit labor costs suggest the U.S. labor market is generating less inflationary pressure than had been feared. Over the past year, unit labor costs have edged up just 0.3 percent.

The report should come as welcome news to policy-makers at the U.S. Federal Reserve, who had warned that a tightening labor market could be a source of price pressure.

Fed officials gather on June 28-29 to consider whether to raise benchmark borrowing costs for a 17th straight time. Markets have been uncertain over what the Fed will do, although traders increased bets on a rate hike after minutes from the Fed's last policy meeting released on Wednesday showed officials anxious about inflation.

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