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Ahead of the Bell: US productivity

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May 7, 2014 06:31 AM EST | AP

WASHINGTON (AP) — The Commerce Department releases its estimates of U.S. worker productivity and labor costs for the January-March quarter. The report will be released Wednesday at 8:30 a.m. Eastern time.

PRODUCTIVITY SLOWER: Economists believe productivity fell at an annualized rate of 0.9 percent in the first quarter, according to a survey by FactSet. The economists think that labor costs rose at a 2.3 percent rate.

WORKER EFFICIENCY: Productivity measures output per hour of work. Greater productivity should raise living standards because it enables companies to pay their workers more without having to increase prices, which could boost inflation.

A decline in productivity would reflect the anemic growth of the overall economy seen during the first quarter. Gross Domestic Product rose just 0.1 percent in the first three months of 2014. Widespread winter storms that opened the year caused a drop-off in business investment and construction.

During the final quarter of 2013, productivity increased at an annual rate of 1.8 percent while labor costs fell 0.1 percent.

Declining output at the start of 2014 coupled with slight increases in compensation likely drove labor costs higher at the start of this year. But inflation remains mild.

The Federal Reserve tracks productivity and labor costs when setting interest rate policies. Fed officials have attempted to spur growth by keeping short-term interest rates at record lows, while at the same time, purchasing bonds to try to keep long-term rates down as well.

Since December, however, the Fed has reduced its monthly bond-buying to $45 billion, from $85 billion.

But the Fed is committed to holding down short-term rates for an extended period, saying that it expects to maintain those rates "well past" the time that unemployment dipped below its previous threshold of 6.5 percent. The unemployment rate fell in April to 6.3 percent, from 6.7 percent.

In records going back to 1947, productivity has been growing by about 2 percent per year.

In 2010 and 2011, productivity increased at annual rates above 3 percent. That reflected the fact that millions of Americans were laid off as companies struggled to cope with a deep downturn. The number of workers losing jobs outpaced a decline in output, so productivity rose.

That productivity has slowed more recently.