Watch CBSN Live

U.S. Productivity Soars

The U.S. workforce was its most efficient since early in 1983 as unit labor costs fell significantly in the first quarter, the Labor Department reported Tuesday.

First-quarter productivity was up 8.6 percent, topping the 7 percent rise predicted by Wall Street.

The gain was the largest since the second period of 1983, Labor officials confirmed. Fourth-quarter productivity was revised to a 5.5 percent gain from 5.2 percent.

Productivity performance in the January-March quarter was better than many analysts expected. They were forecasting a 7 percent growth rate.

First-quarter unit labor costs fell 5.4 percent, the largest one-quarter drop since the second quarter of 1983.

The performance of unit labor costs in the first quarter also was better than analysts' expectations of a 3.5 percent rate of decline and suggests that inflation is a no-show even as the budding economic recovery unfolds.

The decline shows in part that U.S. companies are slow to hire even as the economy tests its legs. Instead, the existing workforce worked harder in the first quarter.

Some economists are concerned that softer wages could curtail consumer spending in coming months. Limited pricing power has kept new hiring to minimum and held salary increases in check for many industries.

The data show that inflation risks remain contained so far and help support a widespread belief that the Federal Reserve will hold interest rates at 40-year lows as the rate-setting panel draws up around the conference table later Tuesday.

Federal Reserve Chairman Alan Greenspan and his colleagues remain bullish about the long-term prospects of productivity growth, even though businesses sharply cut investment in computers and equipment during the recession. That was a key source of the economy's weakness.

"With the growth of productivity well maintained and inflation pressures largely absent, the foundation for economic expansion has been laid," Greenspan told Congress last month.

In general, productivity tends to rise strongly when the economy is booming. Gains in productivity can become weak or productivity can fall when the economy slows or contracts.

In the long run, productivity gains are good for workers, for the economy and for companies, whose profits took a hit during the slump.

Gains in productivity allow companies to pay workers more without raising prices, which would eat up those wage gains, and permit the economy to grow faster without triggering inflation. If productivity falters, however, pressure for higher wages could force companies to raise prices, thus worsening inflation.

View CBS News In