The report also showed that unit labor costs, or how much workers are paid per unit of output, surged by 11.6% during the quarter. That reflects a 3.2% increase in hourly compensation and a 7.5% decrease in productivity.
Analysts polled by Refinitiv had projected a 5.4% decline in productivity and a 9.9% rise in labor costs.
Thursday’s data underscores the robust labor market, where competition for workers has pushed up wages as companies try to attract and retain talent. In March, job openings and quits set all-time highs at 11.5 million and 4.5 million, respectively.
At the same time, ongoing supply chain challenges, the pandemic and Russia’s invasion of Ukraine have all contributed to surging inflation, which the Federal Reserve is attempting to tamp down by raising interest rates. On Wednesday, the Fed said it would raise its benchmark borrowing rate by 50 basis points.
The 7.5% first-quarter productivity plunge comes on the heels of a 6.3% surge in the fourth-quarter, continuing a seesawing pattern of the past two years, Wells Fargo economist Sarah House wrote Thursday in a note.
“Nonfarm labor productivity growth is always prone to short-term swings, since it is derived from the growth in output and hours worked, which in any given quarter can change at wildly different paces,” she wrote. “As with many things, the extreme conditions of the pandemic-economy continues to magnify these characteristics.”
The US economy shrank last quarter for the first time since 2020, in an abrupt reversal of the previous year’s robust economic growth, according to the latest GDP data. That decline was very much related to pandemic supply chain issues distorting inventories and trade data, said Dana Peterson, chief economist for The Conference Board.
“When you get by all that, the US economy is growing healthily,” she said.
Anneken Tappe contributed to this story.
This story is developing and will be updated.