Second-quarter productivity revised up to 1.6%

Reading tops expectations, but also reveals higher labor costs, which could fan speculation of future Fed rate hikes.
September 6 2006: 8:41 AM EDT


WASHINGTON (Reuters) -- U.S. business productivity grew at an upwardly revised 1.6 percent annual rate in the second quarter, the government said Wednesday in a report that showed worker compensation rising much more swiftly than earlier estimates.

The increase in nonfarm business productivity was just a touch stronger than the 1.5 percent gain expected on Wall Street and a quicker advance than the 1.1 percent the Labor Department reported a month ago.

But the report also contained revisions to first quarter data that showed hourly worker compensation shot up 13.7 percent at the start of the year, well ahead of the previously reported 6.9 percent gain. In the second quarter, compensation rose at a more subdued, but still strong, 6.6 percent pace in the government's latest estimate.

Those gains pushed unit labor costs - a gauge of inflation and profit pressures - up 5 percent over the past four quarters, the largest gain since a matching rise in the period ended in the third quarter of 2000.

The rapid increase in unit labor costs could help keep alive concerns over potential inflation pressures and possible Federal Reserve interest-rate hikes.

After 17 straight interest-rate increases dating to June 2004, the U.S. central bank held borrowing costs steady at its last meeting on Aug. 8, but it said some inflation risks remained.