Business News : First quarter productivity falls more than expected

WASHINGTON (Business News) - U.S. nonfarm productivity fell more than expected in the first quarter as companies gave more hours to employees but only modestly expanded output, revised data from Labor Department showed on Wednesday.

Productivity slipped at a 0.9 percent annual rate, a sharper decline than the 0.5 percent initially reported by the government.

Analysts polled by Business News had expected productivity to decline at a 0.7 percent rate during the period.

Employers slashed payrolls during the 2007-09 recession, helping fuel a spike in productivity. But the increase in output-per-hour faded last year, and productivity has declined in three of the last five quarters.

U.S. stock index futures were up on speculation the European Central Bank could act on the euro zone debt crisis. The euro pared gains against the dollar, while U.S. government debt prices were steady at lower levels.

Economists are divided about what recent weakness in productivity will mean for the economy.

One the one hand, it could show that employers are squeezing about all they can out of their current staffs and will need to boost hiring.

But there is also a darker possibility: It could be a sign that the burst in hiring that began last year will continue to wane.

Some economists think employers went overboard laying people off during the recession, and last year's acceleration in hiring reflected the slowdown in productivity growth.

Some Federal Reserve officials, including Chairman Ben Bernanke believe companies are now seeking an alignment with the expected demand for their products. Without stronger economic growth, they argue, the pace of hiring will be hard to sustain.

In the first quarter, the productivity report showed output rose at a 2.4 percent annual rate and hours worked climbed at a 3.3 percent rate. Unit labor costs gre w at a 1.3 percent rate.