U.S. first-quarter productivity unchanged; labor costs revised down

WASHINGTON (Reuters) - U.S. worker productivity was not as weak as initially thought in the first quarter, but the persistently soft trend is an obstacle to faster economic growth.

The Labor Department said on Monday nonfarm productivity, which measures hourly output per worker, was unchanged in the last quarter. It was previously reported to have declined at a 0.6 percent annualized pace.

The government also reported that the growth in labor costs at the start of the year was not as strong as reported in May, which could cast doubts on the tightening labor market's ability to unleash robust wage growth.

The revision to first-quarter productivity was in line with economists' expectations. Productivity increased at an unrevised 1.8 percent pace in the fourth quarter.

U.S. financial markets were little moved by the report.

Compared to the first quarter of 2016, productivity

grew at a 1.2 percent rate, pointing to some improvement.

Productivity has increased at an average annual rate of 0.6 percent over the last five years, below its long-term rate of 2.1 percent from 1947 to 2016, indicating that the economy's potential rate of growth has declined.

That suggests the Trump administration could struggle to achieve its 3 percent annual gross domestic product growth target. The economy grew at a 1.2 percent pace in the first quarter. It grew 1.6 percent in 2016 and annual GDP growth has not exceeded 2.6 percent since the 2007-09 recession ended.

Economists blame low capital expenditure, which they say has

resulted in a sharp drop in the capital-to-labor ratio, for the weakness in productivity. There are also perceptions that productivity is being inaccurately measured, especially on the information technology side.

Companies have been hiring more workers to maintain output. First-quarter output per worker was revised up to a 1.7 percent growth rate from the previously reported 1.0 percent pace.

The increase in output came as total hours worked increased at an upwardly revised 1.7 percent rate. Hours worked were previously reported to have risen at a 1.6 percent rate in the first quarter.

Unit labor costs, the price of labor per single unit of

output, increased at a 2.2 percent pace in the first quarter instead of the previously reported 3.0 percent rate.

Compared to the first quarter of 2016, unit labor costs rose

at a 1.1 percent rate. Fourth-quarter unit labor costs were revised down to show them declining at a 4.6 percent rate from the previously reported 1.3 percent pace of increase.

Wage growth remains sluggish despite the unemployment rate being at a 16-year low of 4.3 percent. Hourly compensation increased at a 2.2 percent rate in the first quarter rather than the 2.4 percent pace reported in May.

Hourly compensation rose at a 2.3 percent rate from a year ago, down from the 3.9 percent pace estimated last month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)