Productivity falls by most in a year

It’s off 0.6% in quarter; March factory orders up a weak 0.2%

U. S. worker productivity declined in the first quarter by the most in a year as growth in the world’s largest economy weakened, a Labor Department report showed Thursday.

The results reflect the first- quarter slowdown in the economy, which grew at the slowest pace in three years while the job market remained solid.

A sustained acceleration in productivity, the amount of output per hour of work, has been elusive through most of the current economic expansion. As wages remained weak in recent years, businesses relied on new hires rather than more investment in efficiency- boosting technology, though that trend may change eventually as weak productivity erodes profits.

Productivity decreased at a 0.6 percent annual rate after a revised 1.8 percent gain in the previous three months. The cost of labor per unit of output rose at a 3 percent pace after a revised 1.3 percent gain. First- quarter forecasts had called for a 0.1 percent decline in productivity and a 2.7 percent rise in unit labor costs.

Productivity was up 1.1 percent from the first quarter of 2016; unit labor costs, which are adjusted for changes in efficiency, were up 2.8 percent from a year earlier. Adjusted for inflation, hourly compensation fell at a 0.8 percent rate last quarter, after no change in the fourth quarter.

Output rose at a 1 percent rate, after a 2.7 percent gain in the fourth quarter. Compensation for each hour worked rose at a 2.4 percent annual pace. The latest drop in productivity compares with an average annual gain of 0.6 percent from 2012 through last year

Among manufacturers, productivity rose at a 0.4 percent rate in the first quarter after a 2 percent gain.

A separate economic report Thursday from the Commerce Department said March orders to U. S. factories turned in the weakest performance in four months, although a key category that tracks business investment showed more strength.

Factory orders edged up just 0.2 percent in March, a significant slowdown from February’s gain of 1.2 per-

cent. It was also the poorest showing since orders fell 2.3 percent in November, the report said.

Despite the overall decline, a key category that tracks business investment rebounded to a 0.5 percent gain. That is the best showing since December’s 0.8 percent increase. The business category increased a small 0.1 percent in February.

American manufacturers continue to rebound from a rough patch over the past two years when demand for American exports fell because of weak overseas economies and the strong U. S. dollar. The latest report reflects a recovery in U. S. exports, as the dollar has stabilized and major overseas markets have posted stronger growth.

The 0.2 percent overall increase in factory orders included a 0.9 percent gain in durable goods, which was slightly better than the government’s initial estimate last week of a 0.7 percent increase. However, the new report showed that demand for nondurable goods — products that range from food to paper, clothing, gas and chemicals — fell 0.5 percent in March.

Despite this month’s modest gain, economists are still optimistic about U. S. manufacturing growth in 2017.

“In our view, manufacturing activity is set to modestly improve in the coming year and today’s data support our view,” Barclays economist Blerina Uruci said in a note to clients.

The Labor Department said Thursday that weekly claims for unemployment

benefits dropped by 19,000 to 238,000, the lowest level in three weeks. The less volatile four- week average edged up by 750 to 243,000. Overall, 1.96 million Americans are collecting unemployment benefits, down 8.1 percent from a year ago.

Unemployment claims are a proxy for layoffs. They have come in below 300,000 for 113 straight weeks, the longest stretch since 1970. The new report adds to evidence that the job market remains healthy.

Even though the overall economy was growing at a sluggish pace at the beginning of the year, the unemployment rate fell to 4.5 percent in March, the lowest in nearly a decade. The Labor Department will report today on job creation and the unemployment rate for April.

Information for this article was contributed by Shobhana Chandra and Chris Middleton of Bloomberg News and by Martin Crutsinger and Matt Ott of The Associated Press.