Weak US productivity, rising labour costs stir inflation concern

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US nonfarm productivity fell more sharply than initially thought in the first quarter, leading to a jump in labour-related production costs, a trend that could ignite inflation if sustained.

Other data on Thursday showed the labour market tightening, with first-time applications for unemployment aid falling last week and the number of people on benefit rolls hitting the lowest level since 2000. The reports likely keep the Federal Reserve on track to raise interest rates later this year.

Productivity fell at a 3.1 per cent annual rate instead of the previously reported 1.9 per cent pace, marking the first back-to-back fall since 2006, the Labor Department said. It rose only 0.3 per cent from a year ago.

Unit labour costs, the price of labour per single unit of output, increased at an upwardly revised 6.7 per cent rate in the first quarter, the fastest pace in a year. They were previously reported to have increased at a 5.0 per cent rate.

Unit labour costs rose at a 1.8 per cent pace compared to the first quarter of 2014, a sign wage inflation is benign for now.

In another report, the Labor Department said initial claims for state unemployment benefits dropped 8,000 to a seasonally adjusted 276,000 for the week ended May 30. It was the 13th straight week that claims held below the 300,000 threshold, which is usually associated with a strengthening labour market.