Productivity Expected to Show 7% Increase

U.S. productivity in the first quarter probably raced ahead at the fastest pace in two years, making it easier for businesses to boost profits and fuel the economy’s rebound.

The measure of how much work an employee performs in an hour probably rose 7% at an annual rate in the first three months of the year, analysts say the Labor Department’s report will show Tuesday. That would follow a 5.2% pace of increase in the fourth quarter and would be the strongest since a 7.8% surge in the final three months of 1999.

Productivity gains at that pace “set the stage for an eventual resumption in growth for business investment and give companies more leeway to expand hiring,” said James O’Sullivan, a senior economist at UBS Warburg in Stamford, Conn.

That helps explain why the Fed won’t change interest rates when it meets Tuesday.

Gains in efficiency at companies such as DaimlerChrysler’s Chrysler unit also keep a lid on costs, allowing them to offer products at lower prices. Labor costs probably fell at a 3.6% rate after declining at a 2.7% pace, marking the first consecutive quarterly decrease since 1983.

What more, a Labor Department’s report Friday on producer costs probably will provide evidence of tame inflation.

The government’s producer price index probably rose 0.4% in April after a 1% jump in March. Excluding food and energy prices, the index probably increased 0.1% for a second straight month.

Other reports this week:

* Tuesday, the Commerce Department will probably will report a 0.4% decline in March wholesale inventories after a 0.7% decrease, suggesting the pace of stockpile reductions is slowing. Sales at wholesalers probably rose 0.3%.

Also on Tuesday, the Fed probably will report that consumer credit rose by $5.8 billion in March after a $7-billion rise in February.

* Thursday, the Labor Department’s weekly report on initial jobless claims probably will show a decline to 409,000 for the week that ended Saturday. In the previous week, 418,000 Americans filed first-time claims.

Also on Thursday, the Labor Department probably will report a 0.6% increase in prices of imports, as the cost of petroleum rose.