WASHINGTON - Productivity rose at an annual rate of 2.9 percent in the first three months of this year, but that was accompanied by a jump over the past six months in unit labor costs, a key factor that determines future rates of inflation.
The Labor Department reported Thursday that the January-March increase in productivity, the amount of output per hour of work, was up from an initial estimate last month of a 2.6 percent. This reflected the fact that overall output, the nation's gross domestic product, was revised up to 3.5 percent from an original estimate of 3.1 percent.
The costs of producing each unit of output jumped by 3.3 percent in the first three months of the year after surging by a revised 7.7 percent in the final three months of 2004, which was the biggest quarterly jump in more than four years. Federal Reserve policymakers closely track unit labor costs for signs of growing inflation pressures.
Separately, the Labor Department reported that the number of Americans filing new claims for unemployment benefits shot up by 25,000 last week, the biggest weekly increase in 14 months. Labor Department analysts blamed the increase, which pushed total claims to 350,000 last week, on temporary layoffs in the auto industry.
The jump, the biggest one-week gain since a rise of 27,000 in late January 2004, caught private economists by surprise. They had been forecasting that claims applications would remain basically unchanged from the 325,000 of the previous week.
The increase pushed total claims to the highest level in two months while the four-week moving average edged up to 334,500, the highest level since early April.
Still, economists said the labor market is continuing to show gradual improvement.
They believe the unemployment rate remained steady at 5.2 percent in May as the nation's businesses created 180,000 new jobs. The government will release its estimates for employment last month on Friday.
The department's new report on productivity and unit labor costs reflected major alterations to previous data which had showed unit labor costs rising at a much more measured pace.
The 7.7 percent jump in labor costs in the fourth quarter was the fastest quarterly gain since an 8.9 percent surge in the third quarter of 2000. It had earlier been reported as a much more modest 1.7 percent increase.
Labor Department analysts said the sharp upward revision occurred because of revised source data.
The third quarter performance of unit labor costs was revised to show a gain of 4.5 percent while the second quarter gain last year was changed to an increase of 1.8 percent.
The increases were all above the small 0.8 percent rise for all of 2004 and the actual decline of 0.3 percent in unit labor costs in 2003.
The upward revisions were certain to prompt the Federal Reserve to examine whether the economic recovery from the 2001 recession was beginning to trigger higher wage pressures that could spur unwanted inflation.
The Fed has been increasing a key interest rate by gradual quarter-point moves over the past year and has so far pledged to keep moving at a moderate pace because of officials' belief that inflation pressures outside of energy have remained well contained.