U.S. productivity rebounded in the first three months of the year while wage pressures eased, with both outcomes resulting from the country's deep recession. The Labor Department reported Thursday that productivity—the key force behind rising living standards—grew at a 0.8 percent annual rate in the January-March quarter, slightly better than the 0.6 percent increase analysts had expected. The rise in first-quarter productivity was a significant rebound from the fourth quarter of 2008, when productivity fell at a 0.6 percent annual rate. The improvement was a reflection of the massive layoffs that have been happening as businesses try to lower costs to deal with a prolonged recession. Reflecting the big contraction in the overall U.S. economy in the first quarter, the productivity report showed output falling in the first three months of the year. However, the number of hours worked fell at a faster pace. The combination of falling output and a faster drop in hours caused the improvement in productivity, which measures output per hour of work. Productivity is considered the key force for rising living standards because it allows businesses to pay their workers higher wages financed by the increased output. Rising productivity means companies can increase employee pay without raising prices for their goods or services. Wage pressures, as measured by unit labor costs, increased at a 3.3 percent rate in the first quarter, compared to a 5.7 percent rate in the fourth quarter of last year. While wage pressures moderated in the first quarter, they were well above the 0.9 percent rise in labor costs for all of 2008. Still, economists believe labor costs will drop further in coming quarters as the recession and rising unemployment lower wage demands.
