U.S. labor productivity dipped by slightly more than expected in the first quarter of 2012, according to a report released by the Labor Department on Wednesday, with an increase in hours worked outpacing an increase in output.
The Labor Department said labor productivity fell by 0.9 percent during the first quarter, a downward revision from the 0.5 percent decline initially reported.
Furthermore, the drop in productivity reflects a fairly large reversal compared to the 1.2 percent increase seen in the fourth quarter of 2011.
Economists had expected the downward revision to the productivity figures for the first quarter, but most had predicted that productivity would fall by a slightly smaller 0.8 percent.
The drop in productivity, which is a measure of output per hour, was the result of a 3.3 percent increase in hours worked outpacing a 2.4 percent increase in output.
On a year-over-year basis, however, U.S. worker productivity remains up 0.4 percent compared to the first quarter of 2011.
Lindsey Piegza, an economist at FTN Financial, said, "A drop in employee output per hour suggests businesses are maxing out the efficiency potential with the current rate of employment growth."
"While this helps explain the recent weakness in job growth, if consumer spending accelerates the labor market could benefit," she added. "If demand remains weak, however, businesses are liable to make further cuts to compensate for the efficiency loss."
Unit labor costs for the first quarter of 2012 were downwardly revised to show a 1.3 percent increase versus the 2 percent growth initially reported.
The change comes as a result of a downward revision to hourly compensation that was larger than the revision to the productivity figures.
Compared to the same quarter a year ago, unit labor costs rose by 0.9 percent, according to the Labor Department.
The report also showed a substantial revision to unit labor costs in the fourth quarter, which were revised to show a 1.5 percent drop compared to the 2.7 percent increase previously reported.
Although the overall productivity figures declined, the U.S. manufacturing sector saw a 5.2 percent increase in productivity in the first quarter, with output jumping 10 percent amid a 4.6 percent increase in hours worked.
The notable increase in productivity in the manufacturing sector still represents a modest downward revision from the figures initially reported due to a downward revision to output.
Manufacturing labor costs were revised down to show a 4.9 percent drop compared to the 4.2 percent decrease initially reported.
Year-over-year, manufacturing sector productivity is up 2.3 percent, reflecting a 5.3 percent increase in output and a 2.9 percent increase in hours worked.
by RTT Staff Writer
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