Productivity Drops in First Quarter

U.S. workers’ productivity slowed in the first quarter and labor costs rose, the Labor Department said Thursday, as companies boosted employment to meet rising demand.

The 1.8% increase, which was revised from an earlier 1.6% estimate, followed a 2.9% gain the previous three months.

Productivity is a measure of how much an employee produces for every hour of work.

Economists had forecast a 1.7% increase, Bloomberg reported.  Labor costs rose 0.7%, less than the 0.8% forecast.

Among manufacturers, productivity increased at a 6% pace, pushing labor costs down 1.4%.

When worker efficiency improves at a slower pace and labor becomes more expensive, companies may raise prices in order to guard their profits, contributing to more rapid inflation.