updated 5/5/2005 9:14:44 AM ET 2005-05-05T13:14:44

Productivity, a key factor needed to boost living standards, rose at an annual rate of 2.6 percent in the first three months of the year, the best showing in nine months.

Major Market Indices

The Labor Department reported Thursday that the increase in productivity, a measure of worker efficiency, compared to a 2.1 percent rate of increase in the October-December quarter of last year. It was a slightly better gain than economists had been expecting and represented the fastest increase since a 3.9 percent jump in the April-June quarter of last year.

With the solid increase in productivity — the amount of output per hour of work — unit labor costs rose by a moderate 2.2 percent in the first three months of the year. That was up slightly from a 1.7 percent rise in unit labor costs in the fourth quarter but far below the 4 percent surge in the third quarter of 2004.

In other news, the number of Americans filing new claims for unemployment benefits rose to 333,000 last week, reflecting a larger-than-expected rise of 11,000 benefit applications from the previous week. It was the second straight weekly increase following a rise of 22,000 the previous week.

However, the four-week moving average, considered a better indicator of trends, fell by 2,000 to 321,500 last week, a level that analysts believe shows the labor market is still improving.

Economists believe that even with the recent economic slowdown, Friday’s employment report will show an increase of 175,000 jobs in April, up from an increase of 110,000 jobs in March.

Meanwhile, the nation’s retailers reported mixed sales results in April, continuing a lackluster trend that began in March. Wal-Mart Stores Inc., the country’s biggest retailer, reported that sales at stores open for at least a year, were up 0.9 percent last month, slightly below the 1 percent rise expected by Wall Street analysts.

The slowdown in consumer spending has been blamed on the jump in energy prices this year and has raised worries about a repeat of last year’s “soft patch” in economic growth.

Productivity, which performed sluggishly for the two decades following the oil shocks of the early 1970s, picked up signficantly in the later stages of the country’s record-breaking economic expansion of the 1990s.

The performance of productivity is significant because if more goods and services can be produced in the same amount of time, then businesses can pay their employers more without raising prices or cutting into their profits.

However, some economists are worried that the boom in productivity that occurred beginning in 1995 is starting to slow. While the increase in productivity for all of 2004 was 4.1 percent, that reflected strength in the first half of the year. Starting in the third quarter, productivity slowed to 1.3 percent and turned in a gain of 2.1 percent in the fourth quarter, far felow the gains of 3.8 percent in the first quarter and 3.9 percent in the second quarter.

However, other analysts believe the productivity rebound that began a decade ago has not yet run its course and they are forecasting solid gains in the months ahead.

The 2.2 percent increase in unit labor costs, a closely watched gauge of inflation pressures in the labor market, was slightly higher than analysts had been expecting but still showed only moderate wage pressures.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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