Productivity in the U.S. Probably Cooled, Labor Costs Dropped

Via BusinessWeek

By Shobhana Chandra

May 6 (Bloomberg) -- The productivity of U.S. workers probably rose in the first quarter at the slowest pace in a year as employers took on staff to meet growing demand, economists said before a report today.

Employment may keep growing as companies such as Timken Co., which slashed payrolls and relied on becoming more efficient to lower expenses and protect profits during the recession, now look to expand as sales improve. The drop in labor costs is also helping limit inflation, giving Federal Reserve policy makers room to keep interest rates near zero.

“Productivity is still pretty good, but we’re likely to see it moderate,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Labor costs are going to remain very modest. The Fed will be on hold for quite some time.”

The Labor Department’s productivity figures are due at 8:30 a.m. in Washington. Economists’ estimates ranged from gains of 1.5 percent to 3.9 percent.

Labor expenses adjusted for the gains in efficiency fell at a 0.7 percent rate after dropping at a 5.9 percent pace the prior quarter, according to the survey median. For all of 2009, labor costs plunged 1.7 percent, the most since records began six decades ago.

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