U.S. workers were more efficient in the second quarter of 2004, but the rate of productivity growth (search) was the slowest since late 2002, the government said on Thursday.

The Labor Department (search) said nonfarm output per worker hour grew at a 2.5 percent annual rate in the April-June quarter, down from the 2.9 percent pace initially reported last month and the slowest clip since the fourth quarter of 2002's 1.6 percent rate.

The number was close to analysts' projections for a 2.7 percent rate. Still, productivity was down from the first quarter of the year, when it grew at a much faster 3.7 percent annual clip.

Workers put in more hours and produced less output in the updated figures, leading to the downward revision in productivity. Output was revised to a 3.5 percent rate in the quarter, down from the initially reported 3.8 percent pace, while hours worked rose at a 1.0 percent clip, up from 0.8 percent in the original estimate.

Unit labor costs — closely watched by economists as an early warning gauge for inflation pressures — were revised down in the report. Costs gained at a 1.8 percent pace, off slightly from the 1.9 percent rate seen in the initial report. First-quarter unit labor costs were revised sharply lower, to falling at 1.6 percent rate from rising at a 0.3 percent pace in the previous report.

The figures should give some comfort to the Federal Reserve (search), which has embarked on a series of interest-rate hikes this year in an effort to forestall inflation as the economy expands. Continued strong productivity gains allow for robust corporate profits or higher worker wages without contributing to inflation.