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US productivity falls for second straight quarter

[WASHINGTON] US nonfarm productivity fell in the first quarter as harsh winter weather weighed on output, pushing labour-related production costs to rise at their quickest pace in a year.

Productivity declined at a 1.9 per cent annual rate after dropping at a revised 2.1 per cent pace in the fourth quarter, the Labour Department said on Wednesday. That was the first back-to-back fall in productivity since 2006.

Economists polled by Reuters had forecast productivity, which measures hourly output per worker, dropping at a 1.8 per cent rate after falling at a previously reported 2.2 per cent rate in the last three months of 2014.

The drop in productivity, which mirrored an abrupt slowdown in economic growth in the first quarter, is likely to be temporary. Still, the trend remains weak. Productivity rose 0.6 per cent from a year ago.

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A combination of cold weather, a strong dollar, port disruptions and deep spending cuts by energy companies, held down first-quarter economic growth to a 0.2 per cent pace.

A jump in the trade deficit in March, however, suggests the economy actually contracted in the first three months of the year after expanding at a 2.2 per cent pace in the fourth quarter.

Despite the weather disruptions, workers put in more hours in the first quarter. Hours increased at a 1.7 per cent rate. With hours outpacing a 0.2 per cent pace of decline in output, unit labour costs increased at a 5.0 per cent rate in the first quarter. That was the fastest pace since the first quarter of 2014.

Unit labour costs, the price of labour per single unit of output, increased at a 4.2 per cent rate in the fourth quarter. They rose 1.1 per cent compared to the first quarter of 2014, a sign that wage inflation remains benign.

Compensation per hour increased at a 3.1 per cent rate in the first quarter, also the quickest pace since the first quarter of 2014. Coming on the heels of a report last week showing a solid increase in labour costs in the first quarter, the rise in compensation suggests that wage inflation could be firming.

The steadily rising labour costs against the backdrop of weak productivity could squeeze corporate profits.