WRAPUP 3-U.S. productivity gains ease, jobless claims dip

* Productivity growth pulls back in first quarter

* First-quarter output up 4.4 pct, labor costs fall

* Weekly jobless claims fall slightly
(Recasts with details, updates markets, adds byline)

By Lucia Mutikani and Caroline Valetkevitch

WASHINGTON/NEW YORK, May 6 (BestGrowthStock) – A surge in U.S.
productivity slowed in the first quarter, hinting that
employers may soon need to step up hiring after months of
squeezing more output from a small pool of workers.

Data on Thursday also showed new applications for
unemployment benefits fell slightly last week, indicating the
job market continues to improve only slowly even as the
economic recovery shows some signs of broadening out.

They came ahead of Friday’s employment report, expected to
show payrolls grew for a second month in April.

Non-farm productivity rose at an annual rate of 3.6 percent
in the first quarter, while unit labor costs fell 1.6 percent,
the Labor Department said.

“That’s good news for profits, since it means that sales
improvements are going straight through to the bottom line,”
said Nigel Gault, chief U.S. economist at IHS Global Insight in
Lexington, Massachusetts.

U.S. jobless claims graphic: http://link.reuters.com/xur82k

U.S. productivity: http://link.reuters.com/kar82k

April same-store sales: http://link.reuters.com/zas82k

When or whether employers will start hiring more
aggressively is at the heart of a debate on how solid recovery
is in the world’s biggest economy after 8.2 million Americans
lost their jobs during the worst downturn since the 1930s.

The productivity number beat expectations for a 2.5 percent
rise in the first quarter but Gault and others said they
expected productivity growth to slow through 2010, as employers
find it harder to squeeze more out of the existing workforce.

“That (slower growth) will mean more hours worked and more
hiring, boosting labor incomes, but the turnaround in the labor
market is likely to be only a gradual one,” he said.

In the fourth quarter, productivity increased at a rate of
6.3 percent, while unit labor costs, a gauge of inflation and
profit pressures closely watched by the Federal Reserve, fell
5.6 percent.

In a second 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.

“The pace of layoffs is clearly slowing, but on the hiring
side, firms seem to be adding to their payrolls only
gradually,” said Omair Sharif, an economist at RBS in Stamford,


U.S. financial markets were little moved by the reports as
attention focused on developments in Greece.

Stocks on Wall Street tumbled amid disappointment that the
European Central Bank had stopped short of taking any
additional measures to keep Greece’s debt crisis from spreading
in the euro zone.

The blue-chip Dow Jones industrial average (.DJI: ) fell
almost 4 percent, while the S&P 500 index erased the year’s
gains. U.S. Treasury debt prices rallied, while the U.S. dollar
rose to a 14-month high against the euro.

The claims data has no direct bearing on Friday’s jobs
data, as it falls outside the survey period. A Reuters survey
predicted non-farm payrolls increased 200,000 last month
following March’s 162,000 gain. The employment rate is expected
to have held steady at 9.7 percent for a fourth month.

Recruiting firm Monster Worldwide Inc (MWW.N: ) also reported
a rise in its gauge of online demand for labor in the United
States for a third straight month in April, posting its largest
year-on-year percentage gain since July 2007. [ID:nNLL5GE61U]

The upbeat numbers were tempered, though, by a report
showing U.S. store chains including Gap Inc (GPS.N: ) posted
disappointing April same-store sales, casting doubt on whether
a rebound in consumer spending will be sustained.[ID:nN05176011]

Still, optimism over the economic outlook continues to
grow. St. Louis Federal Reserve Bank President James Bullard
said on Thursday the economy was well into a recovery process,
but added it wasn’t time yet to lift the U.S. central bank’s
pledge to keep interest rates very low for an extended period.

“No, I don’t think so. I’ve just tried to stress that it’s
important to have a …. policy that emphasizes that everything
depends on how the economy evolves,” Bullard said.

The economy grew at an annual pace of 3.2 percent in the
first quarter slowing from a 5.6 percent inventory-induced
spurt in the fourth quarter.

Thursday’s productivity data also showed total non-farm
output grew at a 4.4 percent rate in the January-March period
after a robust 7.0 percent pace in the fourth quarter.

Hours worked edged up at a 0.8 percent rate, the highest
since the second quarter of 2007, from 0.7 percent in the
fourth quarter, further evidence that that the recovery is

Investing Research

(Additional reporting by Mark Felsenthal; editing by
Patrick Graham)

WRAPUP 3-U.S. productivity gains ease, jobless claims dip