US productivity grew solidly in the first quarter, although not as fast as in previous periods, and data also showed the number of US workers filing claims for jobless aid fell slightly last week.
The US Labor Department today said non-farm productivity rose at a 3.6 per cent annual rate, the smallest advance in a year, after expanding at a brisk 6.3 per cent pace in the fourth quarter.
Analysts had expected productivity, which measures the hourly output per worker, to rise at a 2.5 per cent rate in the January-March period. The bigger-than-expected rise reflects the successful efforts by businesses to hold the line on hiring but the sharp slowdown indicates they won't be able to do so forever.
"The productivity data is not as strong as the prior three quarters, but is strong by any other measure, and mainly reflects a slow shift toward hiring as firms lack the capacity to extract more output out of existing workers," said Alan Ruskin, chief currency strategist at RBS Global Banking and Markets in Stamford, Connecticut.
In a separate report, the Labor Department said initial claims for state unemployment benefits dropped 7,000 to a seasonally adjusted 444,000. Markets had expected claims to fall to 440,000.
US stock index futures held losses, while government debt prices were steady at lower levels. The US dollar held gains versus the euro.
The four-week moving average of new jobless claims, considered a better measure of underlying job market trends, fell 4,750 to 458,500, after rising for four weeks.
The labour market is on the mend after taking a beating during the recession, but the recovery pace may be painfully slow for the 8.2 million Americans who lost their jobs during the worst downturn since the 1930s.
Today's claims data has no bearing on April's employment report due tomorrow, as it falls outside the survey period.
The employment rate is expected to have held steady at 9.7 percent for a fourth month. Productivity expanded rapidly in the previous three quarters as businesses wrung more output from a small pool of labour.
Despite the resumption of economic growth, firms have been reluctant to hire new workers, opting instead to increase working hours. With productivity slowing, they may need to start hiring workers to keep production up.
The economy grew at an annual pace of 3.2 per cent in the first quarter slowing from a 5.6 per cent inventory-induced spurt in the fourth quarter.