WASHINGTON -- U.S. workers were more productive in the April-June quarter, and labor costs rose slightly, a sharp turnaround from grim first-quarter figures.

The Labor Department said Friday that productivity increased 2.5 percent at a seasonally adjusted annual rate after plummeting 4.5 percent in the first quarter. That was the steepest drop in 31 years and reflected a sharp 2.1 percent contraction in the economy. Economists blamed most of that shrinkage on temporary factors, such as harsh weather and a cutback in stockpiling by businesses.

U.S. stocks rose Friday, with the Standard & Poor's 500 Index climbing the most in five months to erase a weekly loss. The S&P 500 jumped 1.2 percent to 1,931.59. The Dow Jones industrial average climbed 185.66 points, or 1.1 percent, to 16,553.93.

Productivity measures output per hour of work. Greater productivity increases living standards because it enables companies to pay their workers more without having to increase prices.

Labor costs rose just 0.6 percent in the second quarter after surging 11.8 percent in the first quarter. But labor costs shrank in the second half of last year and in the past 12 months have increased just 1.9 percent.

That is below the long-run average of 2.8 percent and suggests that wages and salaries aren't rising fast enough to promote inflation.

The Federal Reserve keeps close watch on productivity and labor costs for any signs that inflation may be accelerating. Labor-cost gains have been tame throughout most of the recovery. Wages for most workers have barely kept up with inflation since the recession ended.

Economic growth is improving and the labor market is strengthening while inflation is edging closer to the Federal Reserve's goal of 2 percent. That helps explain why central bank officials are continuing to trim monthly bond purchases even as they hold the target interest rate close to zero.

The U.S. economy expanded at a 4 percent annualized rate from April through June, after shrinking 2.1 percent in the first quarter, according to Commerce Department data.

In the past 12 months, productivity has increased 1.2 percent, below the long-run average of 2.2 percent.

Productivity growth has been weak in the five years since the recession ended. That has raised concerns among some analysts that the U.S. economy may not be able to grow as quickly as it has in the past.

Productivity grew just 0.9 percent in 2013, 1 percent in 2012 and just 0.1 percent in 2011, according to revised figures released Friday.

In the short run, slow productivity can lead to increased hiring. That's because companies need to hire more workers to lift output. Employers have added an average of 244,000 jobs a month in the past six months, the best six-month pace in eight years.

"As businesses see improvement in demand, they are more likely to increase hiring to keep up with orders," said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. "The gains in labor costs are still subtle and very early. It's premature to worry about labor costs overheating."

In a second report Friday, the Commerce Department said U.S. wholesalers restocked their warehouses at a modest pace in June for a second-straight month, a sign they may anticipate slower growth ahead.

Wholesale inventories rose 0.3 percent, the same as the previous month. May's inventory gain was revised down from 0.5 percent.

The slowdown in restocking likely reflects weaker wholesale sales. Sales grew just 0.2 percent in June, down from 0.7 percent in May.

In June, companies increased their stockpiles of furniture, lumber, computer equipment, and steel and other metals. But auto inventories fell, even as sales jumped. That suggests automakers will need to keep cranking out cars to meet strong demand.

The report shows that inventory levels are roughly in line with sales. That means wholesalers likely haven't gone too far in restocking their goods. As a result, they probably won't have to slow restocking in the coming months.

Slower rebuilding of inventories can drag on growth. That's because it means fewer orders for factory goods.

That is what happened in the first three months of the year, when a big downshift in inventory building subtracted 1.2 percentage points from the economy's growth.

The slowdown was temporary, however. Inventory restocking contributed about 1.7 percentage points to growth in the second quarter, when the economy expanded at a 4 percent annual rate.

The report Friday covers inventories held at the wholesale level.

In a later report, the government will detail inventories at the manufacturing and retail levels.

Information for this article was contributed by Christopher S. Rugaber of The Associated Press and by Shobhana Chandra, Chris Middleton and Elena Popina of Bloomberg News.

A Section on 08/09/2014