US worker productivity grew at a slower pace than initially estimated in the first quarter, driving up labour costs and reinforcing concerns about inflation.
The Labour Department reported on Wednesday that non-farm productivity, a measure of how much any given worker can produce in an hour, advanced at a 1.0 percent annualised pace in the quarter, driving up unit labour costs by 1.8 percent.
Economists were expecting the Labour Department report to show weaker productivity and higher labour costs after the government reported gross domestic product growth of just 0.6 percent during the first quarter. "It indicates growth was not so great in the first quarter and that went straight into productivity," said Nigel Gault, chief US economist at Global Insight in Waltham, Massachusetts.
"As far as the Fed is concerned, they are not going to be surprised, but this reminds them that wage pressure is still the number one inflation risk, at least domestically," he added. US stocks fell on Wednesday after release of the Labour Department data, which fuelled concerns that inflation and rising interest rates will hurt corporate profits.
Economists believe the first quarter marked a low point for the US economy and now look for economic growth to quicken, which means productivity growth should pick up a bit as well. The first-quarter productivity figure, revised from the government's 1.7 percent estimate a month ago, was followed by the Bush administration's downgraded assessment of the economy for this year.
In a forecast, the White House Council of Economic Advisers, Treasury Department and Office of Management and Budget revised down a forecast for 2007 GDP growth to 2.3 percent this year from 2.9 percent.
But administration officials expect stronger growth later this year. "A variety of indicators signal a faster-growing US economy for the rest of this year," said Edward Lazear, chairman of the White House's Council of Economic Advisers. "Unemployment remains remarkably low, business inventories are lean compared with sales and now industrial production is on the rise." On the labour front, US employers announced plans in May to eliminate 71,115 jobs, up 32 percent from May 2006 when job cuts totalled 53,716.
It was the second consecutive month in which job cuts increased from the year earlier period, according to the monthly job-cut report released on Wednesday by global outplacement consultancy Challenger, Gray & Christmas, Inc Still, year to date, the pace of job cutting remains below last year's level, but the gap is rapidly closing.
A separate report showed rising mortgage rates dampened demand for home loans last week, with an increase in applications for loans to purchase homes overshadowed by a drop in refinancings. The Mortgage Bankers Association's mortgage application index slipped 1.7 percent to a seasonally adjusted 625.3 in the week ended June 1 as long-term interest rates hit their highest level since October.
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