Labor productivity increased by more than expected in the first three months of the year, according to a report released by the Labor Department on Thursday, although the report also showed a bigger than expected increase in labor costs.

The report showed that productivity rose 0.8 percent in the first quarter following a revised 0.6 percent decrease in the fourth quarter. Economists had expected productivity to rise 0.6 percent compared to the 0.4 percent decrease originally reported for the previous quarter.

With the sequential increase, productivity in the first quarter was up 1.8 percent compared to the same quarter a year ago, although this is lower than the 2.5 percent average rate of growth from 2000 to 2007.

The increase in productivity came as hours fell at a faster rate than output, with hours falling by 9.0 percent and output falling by 8.2 percent. The drop in hours marked the steepest decrease since the first quarter of 1975.

At the same time, the Labor Department said that unit labor costs increased by 3.3 percent in the first quarter after surging up by an unrevised 5.7 percent in the fourth quarter.

While costs increased at a slower pace compared to the previous quarter, the increase exceeded economist estimates of a 2.7 percent increase.

The report also showed that growth in hourly compensation slowed to 4.1 percent in the first quarter from a revised 5.2 percent in the fourth quarter.

In other economic news, the Labor Department released a separate report showing an unexpected decrease in initial jobless claims in the week ended May 2.

The report showed that jobless claims fell to 601,000 from the previous week's revised figure of 635,000. Economists had been expecting jobless claims to edge up to 635,000 from the 631,000 originally reported for the previous week.

At the same time, the Labor Department said that continuing claims continued to rise in the week ended April 25, rising to a new record high of 6.351 million from the preceding week's revised level of 6.95 million.

While the unexpected decrease in jobless claims provides further signs of stabilization in the struggling labor market, the continued increase in continuing claims reflects the difficulty in finding new jobs.

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