First-Quarter Productivity Fell More Than Expected

By TSC Staff ,

Investors took in stride this morning's surprisingly soft data on

productivity and labor costs.

Productivity -- or how efficient workers are in the U.S. -- softened dramatically in the first quarter, declining 1.2%. This compares with the previous estimate for a 0.1% decline. Economists were expecting it would drop 0.7%. Productivity had gained 2% in the final quarter of 2001.

Unit labor costs -- representing the cost of workers' output -- registered their biggest gain since the fourth quarter of 1990, jumping 6.8%. That's higher than the 5.8% gain that was anticipated by economists.

High productivity levels in recent years have allowed the U.S. economy to grow at a rapid "new-economy" pace with little threat of runaway inflation. But now productivity is slipping.

Still, the major stock market averages were moving higher in morning trading.

Other economic data released this morning showed that factory orders fell 3% in April, greater than the 2.8% decline that was expected. The slip means that new orders for manufactured goods fell $10.4 billion to $336.9 billion in April.

The

National Association of Purchasing Management's

non-manufacturing index fell to 46.6% in May, half a percentage point lower than the April reading and a sign of more contraction in non-manufacturing business activity.

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