Worker Productivity Below Estimates

Worker productivity in the Q1 was much lower than original estimates, according to a government report. Productivity increased by 1% in the quarter, down from the original estimate of a 1.7% gain, but matching the consensus of economists. The slower economic growth cut into productivity gain, which measures the output of U.S. workers. The slower productivity raised inflation, as the unit labor costs rose 1.8% in the quarter. It indicates growth was not so great in the first quarter and that went straight into productivity.

The lower productivity and higher labor costs could keep the Federal Reserve from moving to cut rates to spur the economy in the face of the slowing economy. Higher labor cost could lead to job cuts. U.S. employers announced plans in May to eliminate 71,115 jobs, up 32% from May 2006. It was the second consecutive month in which job cuts increased from the same period a year ago.

Still, year to date, the pace of job cutting remains below last year's level, but the gap is rapidly closing. Heavy downsizing in the computer industry dominated May job cuts. Heavy job cutting in the computer industry reflects a slowdown in business spending on new technology.