Implications: Productivity beat consensus expectations, rising at a 1.8% annual rate in the first quarter. This was revised higher from last month's estimate as output was revised slightly higher but hours remained unchanged. Productivity has increased in nine of the last ten quarters and we believe that trend will continue. What's impressive about the first quarter is that gains in productivity came at the same time that the number of hours worked still increased at a healthy 1.4% annual rate. Companies today are able to find ways to be more efficient while still demanding more hours. Despite rampant pessimism about the outlook of the economy, these gains in productivity are robust enough to both generate pay increases and make it necessary for companies to hire more workers going forward. We expect private sector hiring to remain strong in 2011. In other news this morning, new claims for unemployment insurance fell 6,000 last week to 422,000. Continuing claims for regular state benefits declined 1,000 to 3.71 million. In other recent news, cars and light trucks were sold at an 11.8 million annual rate in May, down 10.5% from April but still up 1.3% versus a year ago. The disaster in Japan has hurt the auto sector the most. Inventories have plummeted and manufacturers and dealers have responded by drastically reducing incentives. This will reverse over the next few months as auto production rebounds.
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