U.S. workers were less productive in the second quarter than previously thought, as economic activity slowed from April through June.

Nonfarm business productivity grew at a seasonally adjusted annual rate of 2.5% during the second quarter of 2004, the slowest pace in 18 months, the Labor Department said today. The growth rate had previously been estimated at 2.9%.

Economists had predicted 2.7% growth in nonfarm business productivity.

The Labor Department’s report showed that the productivity slowdown in the second quarter partly reflected a downward revision to the government’s previous estimate of economic growth. The U.S. gross domestic product grew at a seasonally adjusted annual rate of just 2.8% from April through June, down from the initial estimate of 3%.

However, unit labor costs grew at a slightly slower pace than previously thought. Those costs rose just 1.8% in the second quarter, down from the previous estimate of 1.9%. In year-on-year terms, however, unit labor costs actually declined, falling 0.3%.

Manufacturers of nondurable goods enjoyed the biggest productivity gains during the second quarter, the Labor Department said. Labor productivity among such companies increased 9.7%, up from a 1.2% gain in the first quarter. Overall, the manufacturing sector saw a productivity gain of 6.9%, up from 2.8% in the first quarter.

Meanwhile demand for U.S. factory goods surged during July, surpassing expectations as orders accelerated for aircraft and for capital goods. The Commerce Department said factory-goods orders rose by 1.3%, following an upwardly revised 1.2% advance in June. June orders were originally estimated as rising 0.7%. Economists had forecast a 1.1% increase for July.

It was the fifth increase in overall factory orders in six months and another bullish sign on manufacturing.

A key indicator of business spending — nondefense capital-goods orders excluding aircraft — advanced 0.7%, after rising 1.8% in June. Consumer-goods orders, however, decreased by 0.5%, after a 0.7% advance in June; consumer durable-goods orders sank by 5.3%, while consumer nondurables rose 1.1%.

The report also showed that factory shipments rose by 0.6%. Unfilled orders gained 1.2%. Factory inventories increased by 0.8%.

Separately, the number of U.S. workers filing first-time applications for unemployment benefits surged to a five-month high last week as layoffs related to Hurricane Charley continued to mount.

Initial jobless claims rose for a second week in a row, climbing by 19,000 to 362,000 in the week ended Aug. 28. That marked the highest level since the week of April 10. The four-week average, which smoothes out weekly fluctuations, increased by 6,250 to 343,000. Economists had called for a reduction of 6,000 claims.