U.S. labor costs fall sharply; small productivity gain

Labor costs for U.S. businesses plunged in the first three months of 2013 after a strong run up the prior quarter, as companies moved payments forward in anticipation of a tax increase.

Unit labor costs, which represent the cost of labor to produce a single unit of product, decreased at a 4.3% seasonally adjusted annual rate in the first quarter, the Labor Department said Wednesday. That's a big downward revision for the initially estimated 0.5% gain in costs reported last month.

Meanwhile, productivity, or workers' output per hour, was revised down slightly to a 0.5% gain from the previously reported 0.7%. The revised number mostly reflects weaker output during the quarter.

Economists surveyed by Dow Jones Newswires had estimated that productivity rose by 0.4% in the first quarter and that unit labor costs increased 0.5%.

The revised figures take into account new data sources, including a quarterly wage survey.

Unit labor costs plunged in the first quarter after a 11.8% gain in the final three months of 2012. The fluctuations are due to a 9.9% jump in hourly compensation in the fourth quarter followed by a 3.8% decline the first quarter.

That likely reflects the fact that many companies pulled employee payments into the end of last year to avoid tax increases that took place in January.

From a year earlier, first quarter unit labor costs were up a relatively mild 1.1%.

The downward revision in first-quarter productivity follows a downward revision in gross domestic product for the period. The Commerce Department last week said the nation's GDP, a measure of all goods and services produced in the economy, advanced at a 2.4% seasonally adjusted annual rate between January and March, down from its initial 2.5% reading.

The weaker gain in productivity point to only modest demand and may discourage companies from hiring more workers.