WASHINGTON - A surge in U.S. productivity slowed in the first quarter, hinting that employers may soon need to step up hiring after months of squeezing more output from a smaller pool of workers.

Data Thursday from the Labor Department also showed new applications for unemployment benefits fell slightly last week, indicating the job market continues to improve only slowly even as the economic recovery shows some signs of broadening out.

They came ahead of Friday's employment report, expected to show payrolls grew for a second month in April.

Nonfarm productivity rose at an annual rate of 3.6 percent in the first quarter, while unit labor costs fell 1.6 percent, the Labor Department said.

"That's good news for profits, since it means that sales improvements are going straight through to the bottom line," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Mass.

The productivity number beat expectations for a 2.5 percent rise in the first quarter.

In the fourth quarter, productivity increased at a rate of 6.3 percent, while unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, fell 5.6 percent. Hours worked edged up at a 0.8 percent rate, the highest since the second quarter of 2007, from 0.7 percent in the fourth quarter.

In a second report, the Labor Department said initial claims for state unemployment benefits dropped 7,000 to a seasonally adjusted 444,000.

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