AP News

Ahead of the Bell: US Productivity

WASHINGTON (AP) — U.S. worker productivity likely grew modestly from January through March after shrinking in the final three months of 2012.

Economists forecast that productivity grew at a seasonally adjusted annual rate of 1.8 percent in the January-March quarter, according to a survey by FactSet. That is much better than the 1.9 percent contraction in the October-December quarter, though not as healthy as the 3.1 percent gain in the July-September quarter.

Labor costs are expected to have risen at just a 0.4 percent rate. They rose at a 4.6 percent rate in the fourth quarter.

The Labor Department will release the report at 8:30 a.m. EST Thursday.

Productivity is the amount of output per hour of work. It is expected to have increased because output rose at a much faster pace than hours worked.

Over time, higher productivity can signal that companies are managing to make more goods with fewer workers. That could lead them to slow hiring, even if demand rises. But the expected increase in productivity isn't that strong by historical standards and doesn't necessarily point to weaker job gains.

The trend in productivity has been fairly weak. For all of 2012, productivity rose by just 0.7 percent, after an even smaller 0.6 percent rise in 2011.

Those gains were less than half the average growth in 2009 and 2010, shortly after many companies laid off workers to cut costs during the Great Recession. And it's below the long-run trend of 2.2 percent growth a year dating back to 1947.

With productivity growth slow, companies might have to add workers if demand for their product grows. But most economists forecast slow economic growth in the second and third quarters, along with only modest gains in hiring.

The Federal Reserve closely monitors productivity and labor costs for any signs that inflation is affecting wages. Mild inflation has allowed the central bank to keep interest rates at record lows in an effort to boost economic growth and fight high unemployment.

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