U.S. financial markets largely ignored the data, with stocks rising on signs European leaders were coming up with a plan to recapitalize Spain's troubled banks.
Despite the weakening in productivity during the first quarter, the increase in unit labor costs - an important gauge of price and profit pressures - was revised downward to a 1.3 percent gain from 2 percent as hourly compensation was not as robust as previously thought.
Compensation and unit labor costs were also revised downward for the fourth quarter, suggesting labor-related inflation pressures were largely contained and possibly providing scope for the Fed to ease policy further.
The central bank "won't be compelled to temper the urge to provide more accommodation based on concerns over wage inflation," Ellen Zentner, an economist at Nomura, said in a research note.
The Beige Book report also noted inflation pressures appeared to be modest, in part because of a decline in energy prices.