--US Q1 non-farm productivity -0.1% vs +2.0% in Q4
--BLS aide says US productivity posts first decline in 6 years
--US Q1 non-farm productivity +2.8% vs Q1 2000
--US Q1 non-farm unit labor costs +5.2% vs +4.5% in Q4
--US Q1 unit labor costs post steepest rise since Q4 1997
--US Q1 non-farm unit labor costs +3.1% vs Q1 2000
--US Q1 non-farm compensation per hour +5.2% vs 6.6% in Q4

By Simon Kennedy
Washington, May 8 (BridgeNews) - The productivity of the U.S. non-farm workforce fell for the first time in six years in the first quarter, slipping 0.1% and undershooting both the 1.1% median forecast and the 2.0% productivity growth in the prior quarter. Meanwhile, unit labor costs surged 5.2%, the biggest gain since the last three months of 1997, the Labor Department announced Tuesday. That is above the 4.4% forecast.
* * * Although the economy grew a better-than-expected 2.0% in the first three months of the year, wages and average hours worked increased through the quarter, eroding the efficiency of U.S. firms.
The combination of faltering productivity and increasing unit labor costs could put further pressure on profit margins and possibly force corporations to slash costs and investment, undermining an already weak economy, analysts warned ahead of Tuesday's data.
While the increase in unit labor costs may raise inflation fears, the Federal Reserve is likely to focus on the productivity part of the report and so will likely cut interest rates further at its next Federal Open Market Committee meeting May 15. It has already lowered rates a full two percentage points since Jan. 3.
But few think productivity growth will plummet after having doubled to around 3.0% since 1995 as firms have bought into new technologies to boost efficiency. This increase in efficiency is central to the belief of many economists that, despite the slowdown, economic fundamentals remain sound, and growth will rebound by the end of the year.
Compared to the first three months of 2000, non-farm productivity rose 2.8% in the first quarter, the weakest rise since the third quarter of 1999. Unit labor costs rose 3.1% over the same timeframe, the sharpest increase since the third quarter of 1998.
Non-farm productivity growth in the first quarter reflected a 2.0% increase in non-farm hours worked and a 5.2% gain in compensation. After adjusting for changes in consumer prices, real compensation per hour was up 1.0% in the January-March period.
MANUFACTURING PRODUCTIVITY RISES AT 0.3% RATE
Manufacturing productivity rose at a 0.3% rate in the first quarter, the weakest increase since the third quarter of 1993. The productivity of firms producing durable goods fell 0.1%, while those making non-durable goods rose 0.6%. Manufacturing unit labor costs rose climbed 4.4%, the strongest growth in a decade.