First-Quarter Productivity Rebounds Sharply (UPDATE)

Productivity and salaries on the rise, along with weekly jobless claims.

By Martin Crutsinger
AP Economics Writer

WASHINGTON (AP) - The productivity of American workers rebounded at a rapid clip at the start of this year and wages posted a solid gain as well, the government reported Thursday.

The Labor Department said that productivity, the key factor in rising living standards, rose at an annual rate of 3.7 percent in the January-March quarter, better than the 3.2 percent increase initially estimated a month ago. Salaries and benefits per unit of output rose by 1.6 percent after having fallen by 0.6 percent in the fourth quarter.

In other economic news, many of the nation's big chain retail stores reported better-than-expected sales results for May as consumers did not let worries about higher gasoline prices keep them away from the shopping malls.

Federated Department Stores Inc. and J.C. Penney Co. Inc. were among the stores enjoying solid sales. However, Wal-Mart Stores Inc., the nation's biggest retailer, fell short of expectations. Its low-income customers have been among those hit hardest by soaring gas prices.

Meanwhile, the number of newly laid off workers filing claims for unemployment benefits unexpectedly increased to 336,000 last week, a gain of 7,000 from the previous week. Analysts had been expecting jobless claims would decline following recent increases that had been caused by temporary government shutdowns in Puerto Rico.

The increase in weekly claims pushed the four-week moving average for claims up to 333,500 from 330,750 the previous week. That was the highest level for the four-week average since last October.

Even with this slight rise, the expectation is that Friday's unemployment report will show a healthy labor market with the number of jobs created rebounding to around 170,000, up from a disappointing 138,000 job gain in April. The unemployment rate is expected to hold steady at 4.7 percent.

The increase in productivity represented a big rebound after productivity had fallen at an annual rate of 0.3 percent in the fourth quarter. It was the best quarterly showing since a 4.2 percent productivity increase in the third quarter of 2005.

The first quarter figure had originally been reported as a smaller 3.2 percent rise, but it was revised following the government's revision of overall economic activity, as measured by the gross domestic product, to a sizzling 5.3 percent rate for the first quarter, up from an initial estimate of 4.8 percent.

The 1.6 percent increase in unit labor costs, a measure of how much workers are paid per unit of output, was the fastest gain in a year. While rising wages are good for workers, the Federal Reserve is constantly monitoring this compensation gauge to make sure labor costs are staying under control and not adding to inflation pressures.

Rising productivity allows employers to pay workers higher wages and benefits without having to increase the cost of their products, which can trigger inflation.

After two decades in which productivity grew at weak rates of around 1 percent per year, the country has been enjoying a productivity boom since mid-1995.

Analysts predict that productivity growth will remain strong in coming quarters, a development that should translate into further increases in wages, corporate profits and business investment.


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