Small Efficiency Gain Reported

Productivity in U.S. Probably Rose Less Than First Reported
By Joe Richter

March 6 (Bloomberg) -- U.S. worker productivity last quarter grew less than the government initially estimated and labor costs accelerated, suggesting wages may pose more of an inflation threat, economists said before a government report today.

Productivity, a measure of how much an employee produces for each hour of work, rose at an annual rate of 1.5 percent, half as fast as the Labor Department reported a month ago, according to the median estimate in a Bloomberg News survey of economists. A measure of labor costs increased at a 3.2 percent pace, compared with a previous estimate of 1.7 percent.

The figures make it less likely Federal Reserve policy makers will reduce interest rates in coming months even as the economy shows signs of cooling. The smaller gain in efficiency reflects revisions last week that showed a slower pace of economic growth during the fourth quarter than first estimated.

``This shows again that the wage pressures the Fed has been worrying about are legitimate concerns,'' said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. ``It won't necessarily cause the Fed to move on interest rates, but it will keep them looking over their shoulders.''

Fed Chairman Ben S. Bernanke said last month that higher labor costs, which account for about two-thirds of the cost of goods and services, remain an inflation risk because companies could pass higher compensation costs through to prices.

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