Wage Growth and Productivity Slow, Keeping Inflation in Check

The growth in worker productivity slowed in the first three months of this year but so did wages, providing evidence that a slowing economy is holding down inflation.

The Labor Department reported that productivity, the amount of output per hour of work, rose at an annual rate of 1.7 percent in the January-to-March quarter, down from a 2.1 percent rise in the final three months of last year.

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Wages slowed even more sharply with unit labor costs rising at a 0.6 percent rate, compared to a 6.2 percent surge in the final three months of last year when year-end bonuses for high-income workers had inflated the number.

The increase in productivity was slightly better than had been expected, while the slowdown in unit labor costs was much steeper than economists had been expecting.

They were likely to provide assurance to the Federal Reserve that further interest rate increases will not be needed to keep inflation under control.

Separately, the government reported that the number of Americans filing claims for unemployment benefits fell by 21,000 last week to 305,000, the lowest level since mid-January. It was a bigger-than-expected improvement and marked the third straight drop in weekly jobless claims.

While rising wages are good for workers, the Fed becomes worried if wage pressures outstrip productivity gains, a development that can send inflation higher.

The Fed boosted interest rates for two straight years in an effort to slow economic growth enough to dampen rising inflation. The Fed meets again next Wednesday and is expected to keep rates unchanged, believing it has done enough to slow the economy and cause inflation to retreat.

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