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Published: Friday, 5/7/2010

Productivity over forecast; jobless rates continue fall


WASHINGTON - The productivity of U.S. workers climbed more than forecast and fewer Americans filed claims for unemployment benefits, showing the labor market is in the early stages of a slow-developing recovery.

Efficiency rose at a 3.6 percent annual rate in the first quarter, exceeding the 2.6 percent median forecast of economists surveyed by Bloomberg News and down from 6.3 percent in the last three months, Labor Department figures showed yesterday. The number of applications for jobless assistance fell by 7,000 to 444,000 last week, a second report showed.

"This is the tail end of the surge in productivity," said Christopher Low of FTN Financial in New York, which had forecast a 3.5 percent rise. "The pace of hiring is picking up," he said, and "the labor market is recovering, but not fast enough to make anyone happy."

Firms such as Timken Co. and Berkshire Hathaway Inc. are taking on staff as they find productivity gains alone will not be enough to keep up with sales. A report today is projected to show employers increased payrolls for the third time in four months, which may help lift incomes and fuel consumer spending.

The productivity increase last quarter was the smallest in a year, showing firms were reaching the limits on efficiency. Productivity advanced 6.3 percent over the last four quarters, the biggest 12-month increase since 1962.

Expenses fell more than projected as efficiency rose. Unit labor costs, adjusted for productivity, dropped at a 1.6 percent pace last quarter after a 5.6 percent drop the last three months. They were projected to fall 0.7 percent, the survey median showed.

The drop in labor expenses, which account for about two- thirds of the cost of producing a good or service, is helping limit inflation, and the Fed has room to keep interest rates near zero.

"Companies are still using productivity growth and cost-cutting as a major part of their business plan," said Joshua Shapiro of Maria Fiorini Ramirez Inc., a New York forecasting firm.

The report on jobless claims showed the number of people on unemployment insurance fell by 59,000 in the week ended April 24 to 4.59 million. Those collecting emergency and extended payments rose by 153,000 to 5.56 million in the week ended April 17.

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