US Productivity Off 0.5%, First Drop In A Year

U.S. non-farm productivity fell in the first quarter by 0.5 percent as the country's employment base increased, the Labor Department said Thursday.

The decline in productivity, the measure of hourly output per worker, was down from an upwardly revised rate of 1.2 percent growth in the fourth quarter of 2011. The Labor Department previously estimated a 0.9 increase in productivity for the fourth quarter.

It was the biggest drop in productivity since the first quarter of 2011 and the first drop since the second quarter of 2011.

A major reason that productivity declined was because employers added 635,000 new jobs in the first quarter, while GDP grew at 2.2 percent.

One reason that employment increased at a faster pace in the first quarter is that firms are finding it harder to improve the efficiency of their existing workforces, said Paul Ashworth, chief U.S. economist of research firm Capital Economics, in an e-mail.

He noted that the annual growth rate has been below 1 percent for five consecutive quarters. And while companies have increased hiring, compensation per hour has only went up by 1.5 percent in the first quarter at an annual rate.

Labor costs rose at an annual rate of 2 percent, which should keep inflation in check and below the Federal Reserve's 2 percent target, said Ashworth.