Worker productivity is down even as pay rates increase, according to a Q1 productivity and costs report (link opens in PDF) released today by the Labor Department.

Nonfarm business sector labor productivity fell an annualized 1.7% for the first quarter of 2014, driven primarily by a small 0.3% Q/Q increase in output that couldn't keep up with a 2% boost in hours worked. After increasing a revised 2.3% in Q4 2013, analysts had expected a dip, but their 1.2% estimate proved overly optimistic. According to The Wall Street Journal, rough winter weather played a significant role in this quarter's productivity pull.

As productivity took a dip, unit labor costs for nonfarm businesses soared 4.2% for Q1. While productivity's decline played a role, a concurrent 2.4% rise in hourly compensation didn't help employer efficiency. Analysts had expected a smaller 2.8% rise in unit labor costs. 


For manufacturing, Q1 numbers look much better than national averages. Productivity jumped 3.3%, while unit labor costs edged up just 0.1.

Comparing this quarter to Q1 2013, productivity has risen 1.4%, while unit labor costs are up 0.9%.

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