WASHINGTON (Reuters) - U.S. business productivity grew at a greater-than-expected 1.7 percent annual rate in the first quarter, helping to hold labor costs to a slim gain that could comfort Federal Reserve officials hoping inflation will ease.þþIn a sign of a solid labor market, another report on Thursday showed a surprising drop in unemployment claims.þþAnalysts were expecting business productivity, a measure of how much any given worker can produce in an hour, to rise by 1 percent in the first quarter.þþ``The numbers were inflation-friendly since productivity came in slightly higher than expected and unit labor costs diminished by a greater-than-expected margin,'' said Alex Beuzelin, a market analyst at Ruesch International.þþProductivity advanced at a 2.1 percent annualized pace in the fourth quarter of last year, revised up from the previously reported 1.6 percent gain, the Labor Department said.þþUnit labor costs grew at a 0.6 percent annual rate in the first three months of the year, well below the 4 percent rise analysts were expecting. Unit labor costs are the labor cost associated with any given unit of production and a key gauge of profit and inflation pressures.þþIt was the smallest advance in labor costs since a decline of 2.5 percent in the second quarter of 2006.þþU.S. Treasury debt prices pared gains and the dollar and U.S. stock futures rose on the reports as traders focused on the decline in claims for jobless benefits, which came a day before the government's April payrolls report.þþ``We still have other signs that the U.S. jobs market is firm, with jobless claims well below expected,'' said David Watt, senior currency strategist at RBC Capital Markets in Toronto.þþ``So the labor market is not as worrying a trend,'' he added.þþTreasury losses were limited however by the data showing a much smaller-than-expected gain in unit labor costs in the first quarter. þþLESS COSTLY LABORþþThe rise in unit labor costs in the first quarter was much slower than the 6.2 percent annualized increase in the fourth quarter of 2006, which was originally reported as a 6.6 percent gain.þþThe slim gain in unit labor costs also reflected a sharp slowdown in hourly compensation growth, which expanded at an annualized 2.3 percent rate after a revised 8.5 percent pace in the fourth quarter.þþA 1.3 percent year-on-year annualized gain in unit labor costs in the first quarter was the smallest since the second quarter of 2004. Meanwhile, hourly compensation, which includes benefits, rose at a 2.4 percent pace, the slowest since the second quarter of 1995.þþIn 2006, productivity logged its most sluggish gain in nine years, and Federal Reserve officials have been concerned slowing productivity could push up wage inflation amid tight labor markets.þþBut they also have said the slowdown in productivity is likely to be temporary rather than a sign that U.S. workers have lost their competitive edge.þþA separate Labor Department report showed the number of U.S. workers filing new claims for jobless benefits fell unexpectedly by 21,000 to the lowest level of claims since January.þþInitial filings for state unemployment insurance claims slid to 305,000 in the week ending April 28 from an upwardly revised 326,000 the previous week.þþThe last time initial claims were this low was for the week ending January 13, the government said.þþAnalysts polled by Reuters were expecting a 4,000 rise in claims from the previously reported level of 321,000 in the week ending April 21.þþA four-week moving average of claims, which smooths weekly volatility to provide a better sense of underlying job-market trends, slipped to 328,750 from a revised 333,250 a week earlier.þþThe total number of people still on the benefit rolls after drawing an initial week of aid declined more than expected to 2.5 million from 2.59 million in the previous week. Analysts were expecting claims to ease to 2.55 million.þþ
Source: NY Times
