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Productivity slows, labor costs rise

WASHINGTON -- The efficiency of American workers rose in 2005 at the slowest pace since the recession year of 2001 while a key gauge of wage pressures rose at the fastest pace in five years, the government said yesterday.

The Labor Department said productivity rose 2.7 percent last year while labor costs rose 2.4 percent, the biggest jump since a 4.2 percent increase in 2000. For just the final three months of the year, productivity actually fell 0.6 percent, the first decline since early 2001, and labor costs rose 2.4 percent.

The combination of slowing productivity -- the amount of output per hour of work -- and rising labor costs was certain to attract attention at the Federal Reserve, which is worried that rising wage demands could trigger inflation problems.

''The glory days of surging productivity that kept labor costs down look to be behind us," said Joel Naroff, chief economist at Naroff Economic Advisors. ''The expected slowdown in productivity has arrived and that is putting pressure on costs and the Fed."

On Wall Street, investors worried that the jump in labor costs was a sign that inflation might heat up. The Dow Jones industrial average fell 101.97 points to close at 10,851.98 yesterday.

In other economic news, the government said the number of Americans filing for unemployment benefits dropped to 273,000 last week, a decline of 11,000 from the previous week.

Claims have been below 300,000 for four of the past five weeks, an improvement that pushed the four-week moving average for claims down to 283,500 last week, the lowest level in 5 1/2 years.

Analysts said the improvement in jobless claims so far this year could be signaling a significant strengthening in the labor market, meaning fewer layoffs and more job creation by US companies.

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