U.S. worker productivity slumped in the first quarter, though not as steep as initially thought, according to government data on Thursday, which also showed sharp downward revisions to labor costs last quarter and in the final three months of 2022.
Nonfarm productivity, which measures hourly output per worker, dropped at a 2.1% annualized rate last quarter, the Labor Department said. That was revised up from the 2.7% pace of decline estimated last month.
Productivity grew at an unrevised 1.6% rate in the fourth quarter. Economists polled by Reuters had forecast productivity would be revised down to a 2.5% rate of decline.
Productivity decreased at a 0.8% pace from a year ago, instead of the previously reported 0.9% rate. That marked the fifth quarter that productivity dropped on a year-on-year basis.
Large shifts in the composition of the workforce in the wake of the COVID-19 pandemic have made it difficult to get a clear read of productivity.
Weaker productivity is putting pressure on profit margins. Corporate profits have declined for three straight quarters.
Unit labor costs - the price of labor per single unit of output - surged at a 4.2% rate in the first quarter. They were revised down from the previously reported 6.3% pace of growth. They dropped at a 2.2% rate in the fourth quarter, rather than growing at a 3.3% pace as previously estimated.
Unit labor costs increased at a 3.8% rate from a year ago, revised down from the previously reported 5.8% pace. Despite the downward revisions, labor costs are rising too quickly to be consistent with the Federal Reserve's 2% inflation target.
Hourly compensation increased at a 2.1% pace last quarter. It was previously reported to have advanced at a 3.4% pace.
Compensation fell at a 0.7% rate in the October-December quarter instead of growing at a 4.9% pace as previously reported. It rose at a 3.0% rate compared to the first quarter of 2022, revised down from the previously estimated 4.8% pace.
(This story has been refiled to remove extraneous words in paragraph 7)
