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US productivity falls in Q1, compensation increases

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US nonfarm productivity fell in the first quarter, the second quarterly decline, and labour-related costs rose at their fastest pace since 2014 as companies hired more workers to maintain output.

[WASHINGTON] US nonfarm productivity fell in the first quarter, the second quarterly decline, and labour-related costs rose at their fastest pace since 2014 as companies hired more workers to maintain output.

The Labour Department said on Wednesday productivity, which measures hourly output per worker, declined at a 1.0 per cent annual rate.

Fourth-quarter productivity was revised up to show a 1.7 per cent rate of decline instead of the previously reported 2.2 per cent pace. Productivity has only risen in two of the last six quarters.

Economists polled by Reuters had forecast productivity falling at a 1.4 per cent rate in the first quarter. Productivity rose at a 0.6 per cent rate compared to the first quarter of 2015.

Weak productivity helps explain the divergence between lacklustre economic growth and a fairly robust labour market.

Gross domestic product grew at a 0.5 per cent rate in the first quarter, while employment gains averaged 209,333 jobs per month during that period.

Productivity increased at a annual rate of less than 1.0 per cent in each of the last five years.

In a paper published last month, an economist at the Federal Reserve Bank of Kansas City attributed weak productivity to the changing industry mix, which has seen a shift from manufacturing and energy toward the production of services.

Soft productivity has significantly lowered the economy's long-run potential.

In the first quarter, hours worked rose at a 1.5 per cent rate after rising at a 3.3 per cent pace in the prior quarter.

Growth in unit labour costs, the price of labour per single unit of output, increased at a 4.1 per cent pace, the quickest since the fourth quarter of 2014, from a 2.7 per cent rate in the fourth quarter.

Still, the trend in labour cost increases remains moderate. Unit labour costs increased at a 2.3 per cent compared to the first quarter of 2015. Compensation per hour increased at a 3.0 per cent rate in the first quarter after advancing at a 0.9 per cent pace in the fourth quarter.

REUTERS