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Productivity growth slows to 2.8 percent gain

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WASHINGTON (AP) -- Productivity grew at a slower rate in the first three months of the year than previously thought, a sign that businesses may be reaching the limits on how much they can squeeze out of leaner staffs.

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The Labor Department says productivity advanced at an annual rate of 2.8 percent in the January-March period. That is the slowest pace in a year and lower than the 3.6 percent rate the government initially reported last month.

Labor costs declined at a 1.3 percent annual rate, slower than the 1.6 percent drop initially estimated.

A separate report today showed layoffs fell for a second straight week. They dipped by 10,000 to 453,000 last week. Still, the declines come after a sharp increase three weeks ago and claims remain at elevated levels.

A slowing in productivity gains could mean fewer layoffs are coming.

The downward revision in productivity reflected the government's revised estimate of total output as measured by the gross domestic product. GDP was revised to show the economy growing at a 3 percent rate in the first quarter, down from an initial estimate of 3.2 percent.

Less output translated into slower growth in productivity, which is a measure of the amount of output per hour of work.

The first-quarter rise in productivity was the smallest increase since a 0.9 percent gain in the first quarter of 2009. Productivity soared in final three quarter of 2009, growing 6.3 and 7.8 percent for the rest of the year.

This came after companies slashed payrolls to cope with the worst recession since the 1930s

Economists are hoping that productivity will slow this year. That would be an indication that companies had reached the limits of their ability to produce more with fewer workers. It would also suggest they are ready to turn from layoffs to hiring.

Jobless claims are closely watched by economists because they are considered a gauge of layoffs and a measure of companies' willingness to hire new workers.

After falling steadily in the second half of last year, claims have leveled off and are now only slightly below the level they were at the beginning of this year. That's raised concerns among some economists that hiring is still sluggish.

The four-week average, which smooths volatility, rose for the third straight week to 459,000. That's down by only 8,000 from its level in mid-January.

The government will report Friday on unemployment in May. The expectation is that the jobless rate dipped slightly to 9.8 percent with payrolls expected to have increased by 513,000. However, much of that gain will represent a surge in government hiring of temporary census workers.

Analysts are hoping that hiring will show stronger gains in coming months. That will provide a boost to household incomes and keep consumer spending growing at a healthy pace. Consumer spending is critical for a sustained economic recovery because it accounts for 70 percent of total economic activity.

Incomes took a battering during the recession. The report on productivity showed that unit labor costs fell at an annual rate of 1.3 percent in the first three months of the year, representing the fourth quarterly drop out of the past five quarters.

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