Productivity growth slows; labor costs rising

The efficiency of American workers slowed sharply in the spring while a key gauge of labor costs rose at the fastest rate since late 2004.

The Labor Department reported that productivity – the amount of output per hour of work – slowed to an annual rate of increase of 1.1 percent in the April-June quarter, down from a 4.3 percent rate of increase in the first three months of the year.

Labor costs, as measured by each unit of output, rose at an annual rate of 4.2 percent in the spring, the fastest increase since the final three months of 2004 and up sharply from a 2.5 percent rate of increase in the first three months of this year.

Economists said the slowdown in productivity growth and the acceleration in labor costs was certain to raise concerns at the Federal Reserve about the potential for rising inflation.