US business productivity growth slowed in the second quarter but an easing in the pace of compensation gains kept labour costs in check, a government report showed on Tuesday.
Other data showed a bigger-than-expected gain in wholesale inventories in June and rising consumer optimism this month, even though US chain store sales fell last week.
In a report that came as Federal Reserve policy-makers gathered to consider raising interest rates, the Labour Department said growth in non-farm business productivity, or worker output per hour, rose at a 2.2 percent annual rate in the second quarter after a 3.2 percent first-quarter gain.
However, unit labour costs - a key inflation and profit pressure gauge - rose at a mild 1.3 percent pace, well below the first quarter's revised 3.6 percent advance.
Wall Street economists had expected productivity to rise at a 2 percent annual rate in the second quarter, with unit labour costs up 2.8 percent.
Bond prices rose slightly as the data eased inflation concerns. Stock prices were also up in late-morning trade.
Chris Low, chief economist at FTN Financial in New York, said the rise in unit labour costs was "not the kind of rise that will cause the Fed to step up its tightenings."
But some economists cautioned that the longer-term trend for labour costs may be moving up, keeping pressure on the US central bank to push interest rates higher.
Over the past four quarters, unit labour costs have risen 4.3 percent, the biggest jump since the period ending in the third quarter of 2000.
Rapid productivity growth allows businesses to pad profits or boost pay without a need to raise prices for their products or services. As productivity slows, profit margins could erode unless businesses pass along their higher production costs to consumers.
The report incorporated recent revisions to the government's measure of US output and showed productivity growth has been somewhat weaker in recent years than previously thought.
Separately, the Commerce Department said inventories at US wholesalers rose 0.7 percent in June, while sales increased 0.6 percent. The inventories-to-sales ratio stayed at a lean 1.19 months' worth.
"Looking forward, inventory-to-sales ratios remain very well-contained and we expect that inventory rebuilding will add substantially to growth in the third quarter," economists at Bear Stearns wrote in a research note.
Investor's Business Daily and TechnoMetrica Market Intelligence said their economic optimism index rose to 50.9 in August from July's 48.6, suggesting consumers had grown optimistic after being in the below-50 pessimism camp.
Rising spirits did not appear to translate into rising sales, however. The International Council of Shopping Centers and UBS said sales at US chain stores fell 0.8 percent last week, after a 0.9 percent gain in the previous week.
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