WASHINGTON -- U.S. nonfarm productivity fell at its fastest pace in a year in the first quarter as output slowed sharply, leading to a jump in labor-related production costs.
Productivity declined at a 1.7 percent annual rate after advancing at a 2.3 percent pace in the fourth quarter, the Labor Department said Wednesday. It was the biggest drop since the first quarter of 2013.
The fall in productivity, which measures hourly output per worker, was in tandem with a weather-driven sharp weakness in the economy during the January-March period
Manufacturing sector hours fell at a 1.4 percent rate. They had increased at a 3.4 percent pace in the fourth quarter.
Economists polled by Reuters had forecast productivity falling at a 1 percent rate.
First-quarter gross domestic product expanded at a 0.1 percent annual rate, the government said in its advance estimate last week, an abrupt slowdown from the fourth quarter's 2.6 percent rate.
However, subsequent data on March trade, factory orders and construction spending suggest the economy actually contracted in the first three months of the year.
%VIRTUAL-article-sponsoredlinks%The trend in productivity, however, remains modestly up. Compared to the first quarter of 2013, productivity increased 1.4 percent.
Growth in output braked to a 0.3 percent rate in the first quarter, also the weakest pace in a year. Output had increased at a 3.8 percent rate in the fourth quarter.
Factory output grew at an only 1.8 percent pace, sharply slower than the 4.7 percent rate logged in the fourth quarter.
With overall output slowing sharply because of the adverse weather conditions labor-related production costs jumped.
Unit labor costs, the price of labor per single unit of output, surged at a 4.2 percent rate after falling at a 0.4 percent rate in the fourth quarter. It was the biggest rise in unit labor costs since the fourth quarter of 2012.
Economists polled by Reuters had expected unit labor costs to increase at a 2.6 percent rate. Despite the rise last quarter, there was little sign that wage inflation was igniting.
Unit labor costs rose only 0.9 percent compared to the first quarter of 2013.
A government report last week showed labor costs increased at their slowest pace in more than two years in the first quarter.
Slack in the jobs market is suppressing wage inflation, keeping overall price pressures in the economy benign.
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The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.