U.S. Economy: Productivity Revised Lower, Costs Jump (Joe Richter)

  U.S. workers were less productive last quarter than initially estimated and labor costs jumped, raising the risk of faster inflation.

  By Joe Richter

  March 6 (Bloomberg) -- U.S. workers were less productive last quarter than initially estimated and labor costs jumped, raising the risk of faster inflation.

  Productivity, a measure of how much an employee produces for each hour of work, rose at an annual rate of 1.6 percent, down from the 3 percent pace reported last month, the Labor Department said today in Washington. A measure of labor costs climbed 6.6 percent, reflecting a one-time increase in bonuses.

  The figures make it harder for the Federal Reserve to reduce interest rates in coming months even as the economy cools. Traders are betting on a rate cut by August as manufacturing slumps and residential real estate shows few signs of recovering from the worst downturn in 15 years.

  ``This will keep the Fed on the offense,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``We are likely to see productivity weaken over the year ahead as manufacturing and housing exert their drag on growth.''

  A separate report from the Commerce Department showed orders placed with the nation's factories slumped 5.6 percent in January, the largest decline in more than six years. The figures reflected the biggest slide in business equipment orders since January 2004.

  The National Association of Realtors also said today that fewer Americans signed contracts to buy previously owned homes in January. An index of signed purchase agreements dropped 4.1 percent, the most since July.

more

READ MORE: Blooomberg