Labor production fell at the fastest pace in almost 75 years

The report also showed that unit wage costs, or how much workers are paid per unit of production, rose by 11.6% during the quarter. This reflects a 3.2% increase in hourly compensation and a 7.5% decrease in productivity.

Analysts asked by Refinitiv had estimated a 5.4% decline in productivity and a 9.9% increase in labor costs.

Thursday’s data underscores the robust labor market, where competition for workers has pushed up wages as companies try to attract and retain talent. In March, vacancies and final placements set all-time highs of 1[ads1]1.5 million and 4.5 million, respectively.
At the same time, ongoing supply chain challenges, the pandemic and Russia’s invasion of Ukraine have all contributed to rising inflation, which the Federal Reserve is trying to curb by raising interest rates. On Wednesday, the Fed said it would raise its reference rate by 50 basis points.
The decline in productivity of 7.5% in the first quarter comes after an increase of 6.3% in the fourth quarter, and continues a tipping pattern from the last two years, Wells Fargo economist Sarah House wrote in a note on Thursday.

“Growth in labor productivity outside agriculture is always exposed to short-term fluctuations, since it is derived from the growth in production and hours worked, which in a given quarter can change at different rates,” she wrote. “As with many things, the extreme conditions of the pandemic economy continue to magnify these traits.”

The US economy shrank in the last quarter for the first time since 2020, in a sudden reversal of last year’s robust economic growth, according to the latest GDP data. This decline was largely linked to pandemic supply chain problems such as distorted inventory and trade data, said Dana Peterson, chief economist at The Conference Board.

“Once you get over all this, the US economy is growing healthy,” she said.

Anneken Tappe contributed to this story.

This story is under development and will be updated.

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