Productivity grows 3.6 percent in first quarter

By MARTIN CRUTSINGER AP Economics Writer

WASHINGTON (AP) - Productivity growth posted a better-than-expected gain in the first three months of the year while labor costs dropped more sharply than expected. That combination is good for corporate profits but means household incomes continue to be squeezed, putting the economic recovery at risk.

The Labor Department says productivity grew at an annual rate of 3.6 percent in the first quarter. That was better than the 2.5 percent increase economists had expected.

Unit labor costs dropped at an annual rate of 1.6 percent, a bigger decline than the 0.7 percent forecast. It marked the third straight quarterly decline, underscoring how much a severe recession has dampened wage pressures.