US Q1 productivity unchanged

Construction lifts are parked near the Drydock Center in Boston, Massachusetts, on June 2, 2017. (Reuters photo)

WASHINGTON - US worker productivity was not as weak as initially thought in the first quarter, but the persistently soft trend is an obstacle to faster economic growth.

The Labor Department said on Monday nonfarm productivity, which measures hourly output per worker, was unchanged in the last quarter. It was previously reported to have declined at a 0.6% annualised pace.

The government also reported that the growth in labour costs at the start of the year was not as strong as reported in May, which could cast doubts on the tightening labour market's ability to unleash robust wage growth.

The revision to first-quarter productivity was in line with economists' expectations. Productivity increased at an unrevised 1.8% pace in the fourth quarter.

US financial markets were little moved by the report.

Compared to the first quarter of 2016, productivity grew at a 1.2% rate, pointing to some improvement.

Productivity has increased at an average annual rate of 0.6 percent over the last five years, below its long-term rate of 2.1% from 1947 to 2016, indicating that the economy's potential rate of growth has declined.

That suggests the Trump administration could struggle to achieve its 3 percent annual gross domestic product growth target. The economy grew at a 1.2% pace in the first quarter. It grew 1.6% in 2016 and annual GDP growth has not exceeded 2.6% since the 2007-09 recession ended.

Economists blame low capital expenditure, which they say has resulted in a sharp drop in the capital-to-labour ratio, for the weakness in productivity. There are also perceptions that productivity is being inaccurately measured, especially on the information technology side.

Companies have been hiring more workers to maintain output. First-quarter output per worker was revised up to a 1.7% growth rate from the previously reported 1% pace.

The increase in output came as total hours worked increased at an upwardly revised 1.7% rate. Hours worked were previously reported to have risen at a 1.6% rate in the first quarter.

Unit labour costs, the price of labour per single unit of output, increased at a 2.2% pace in the first quarter instead of the previously reported 3% rate.

Compared to the first quarter of 2016, unit labour costs rose at a 1.1% rate. Fourth-quarter unit labour costs were revised down to show them declining at a 4.6% rate from the previously reported 1.3% pace of increase.

Wage growth remains sluggish despite the unemployment rate being at a 16-year low of 4.3%. Hourly compensation increased at a 2.2% rate in the first quarter rather than the 2.4% pace reported in May.

Hourly compensation rose at a 2.3% rate from a year ago, down from the 3.9% pace estimated last month.