U.S. worker productivity grew at a slightly faster-than-expected rate in the first three months of this year than previously estimated, while wage pressures moderated, the government said. The Labor Department reported that productivity rose at an annual rate of 2.6 percent in the January-March period, faster than the government's initial estimate a month ago of 2.2 percent. The 2.6 percent increase in productivity was a big improvement from the 1.8 percent increase in the fourth quarter of last year. Meanwhile, wage pressures slowed from the final quarter of last year, with unit labor costs rising at an annual rate of 2.2 percent in the first quarter. That was significantly lower than a 4.7 percent surge in labor costs in the fourth quarter of 2007. While rising wages are good for workers, such increases can lead to high inflation if businesses are forced to increase the cost of their products to cover the higher wage costs. However, if productivity is increasing, it allows businesses to pay higher wages due to increased output. The Federal Reserve (Fed), always watching for threats of inflation, closely monitors developments in productivity because wage pressures are often the main way inflation gets out of control.
