Productivity posts biggest decline since 1947 in U.S.

WASHINGTON • U.S. worker productivity fell at its steepest pace since 1947 in the first quarter, while growth in unit labour costs accelerated, indicating that rising wage pressures will continue contributing to keeping inflation elevated for a while.

Nonfarm productivity, which measures hourly output per worker, plunged at a 7.5 per cent annualized rate last quarter, the deepest since the third quarter of 1947, the Labor Department said on Thursday. Data for the fourth quarter was revised slightly lower to show productivity growing at a 6.3 per cent rate instead of the previously reported 6.6 per cent pace.

Economists polled by Reuters had expected productivity would drop at a 5.4 per cent pace. The decline was flagged in last week's first-quarter gross domestic product report, which showed the economy contracting at a 1.4 per cent rate in the January-March period.

Productivity fell at a 0.6 per cent pace from a year ago. It has been volatile since the start of the COVID-19 pandemic more than two years ago.

Hours worked increased at a 5.5 per cent rate in the first quarter after rising at a 2.5 per cent pace in the fourth quarter.

Unit labour costs — the price of labour per single unit of output — shot up at an 11.6 per cent rate. That followed a 1.0 per cent growth pace in the October-December quarter. Last quarter's jump likely exaggerates the pace of growth in labour costs.

Unit labour costs increased at a 7.2 per cent rate from a year ago. The surge in costs followed on the heels of a government report last week showing that compensation for American workers notched its largest increase in more than three decades in the first quarter amid a persistent labour shortage.

Hourly compensation rose at a 3.2 per cent rate in the first quarter after growing at a 7.4 per cent pace in the fourth quarter. Compensation increased at a 6.5 per cent rate compared to the first quarter of 2021.