Gains in productivity, labor costs

WASHINGTON - Worker productivity rose in the first quarter at a faster pace than previously estimated, and wage pressures moderated, the government said yesterday.

The Labor Department said productivity rose at an annual rate of 2.6 percent from January through March. That was faster than the government's first estimate of 2.2 percent a month ago.

The 2.6 percent growth rate was a significant change from 1.8 percent in the final three months last year.

Meanwhile, labor costs rose at an annual rate of 2.2 percent in the first quarter, down from a 4.7 percent surge late in 2007.

Separately yesterday, the Institute for Supply Management said its nonmanufacturing index, covering 80 percent of the economy, was at 51.7 in May - better than expected and close to the April figure of 52.

A reading above 50 indicates that service companies, where most people in the nation work, are expanding activity despite the effects of a prolonged slump in housing, a severe credit crunch, soaring energy costs, and plunging consumer confidence.

"The economy may be huffing and puffing and gasping for air, but it has yet to collapse," Joel Naroff, chief economist at Naroff Economic Advisors, of Holland, Pa., said of yesterday's reports.

Naroff said the performance for service industries was encouraging when combined with the report Monday that the institute's manufacturing index had risen in May.

"The economy is not spiraling downward, and that is critical" for the Federal Reserve, he said.