Weak Producitivy Trend Suggests Inflation Could Pick Up More Quickly than Views

U.S. non farm productivity rebounded in the second quarter, but a weak underlying trend suggested inflation could pick up more quickly than economists have anticipated.

Productivity increased at a 1.3 percent annual rate in the April-June period, the Labor Department said on Tuesday.

In line with annual revisions to gross domestic product published last week, first quarter productivity was revised to show it falling at a 1.1 percent rate instead of the previously reported 3.1 percent pace of decline.

But productivity, which measures hourly output per worker, rose only 0.3 percent from a year ago, and annual revisions showed it was much softer in 2013 and 2012.

Growth in productivity is an important determinant of the economy's non-inflationary speed limit. The downward revisions suggested the economy's growth potential could be lower than the 1.5 percent to 2.0 percent pace that economists have been estimating.

That would imply the spare capacity in the economy is being squeezed out more quickly than thought and that inflation pressures may take hold a little bit faster than had been anticipated.

Economists polled by Reuters had forecast productivity rising at a 1.6 percent rate in the second quarter. The economy grew at a 2.3 percent annual pace in period.

But for now, inflation remains benign. Unit labor costs, the price of labor per single unit of output, rose at only a 0.5 percent rate in the second quarter after advancing at a downwardly revised 2.3 percent pace in the first quarter.

Unit labor costs were previously reported to have increased at a 6.7 percent rate in the January-March period. Unit labor costs rose 2.1 percent compared to the second quarter of 2014.

Compensation per hour increased at a 1.8 percent rate in the second quarter after rising at a downwardly revised 1.1 percent pace in the first quarter.

Compensation was previously reported to have increased at a 3.3 percent rate in the first quarter. It was up 2.4 percent compared to the second quarter of 2014.

((Reporting by Lucia Mutikani; Editing by Paul Simao))