Worker productivity rate makes small gain

Posted: Thursday, June 08, 2000

WASHINGTON -- A key measure of worker productivity posted its smallest increase in nine months, rising at a 2.4 percent rate in the first quarter of the year, the government reported Tuesday.

But even with the slower growth, gains in American workers' productivity remain healthy, economists said.

The January-to-March increase in productivity -- the amount of output per hour of work -- followed a 6.9 percent growth rate in the final three months of last year, the Labor Department said.

The first-quarter rate -- the same as the government estimated one month ago -- was the slowest since the second quarter of 1999. But economists said the latest reading on productivity still showed workers making solid improvements.

''It's still very good and it's still two-and-a-half times better than the average from 1970 through 1994,'' said Richard Yamarone, economist with Argus Research Corp.

Productivity growth has doubled in the past four years compared to the previous two decades, a gain most economists attributed to heavy investment by businesses in computers and other productivity-enhancing equipment.

Compared with the first quarter a year ago, productivity for all workers outside of farming increased at a sizable 3.7 percent rate. That matched the pace posted in the fourth quarter, when the economy grew at a sizzling rate of 7.3 percent. With the economy slowing a bit to a still strong 5.4 percent rate in the first quarter, economists expected productivity growth to slow during that period as well. Productivity is the key factor that determines how fast Americans' living standards can rise. It's calculated by measuring the increase in economic output during a given quarter and subtracting the increase in hours worked to get a measurement of output per hour of work. Economists consider healthy productivity gains the key to economic vitality and rising living standards. A sizable gain means a company can pay employees more, hold the line on prices and still deliver increased profits to shareholders.

Unit labor costs -- a key barometer of underlying inflation pressures -- rose at an annual rate of 1.6 percent in the first quarter, not as fast as the government previously estimated but stronger than the 2.9 percent rate of decline in the fourth quarter.

The first-quarter increase in unit labor costs marked the fastest quarterly pace since the second quarter of 1999, but economists didn't view that as worrisome.

''There's no real immediate danger of any major inflation threat. Even though there was a pickup, the first-quarter rate was still very, very well behaved,'' said Clifford Waldman, economist with Waldman Associates.

Compared with the same quarter last year, unit labor costs have risen by just 0.6 percent.

The Federal Reserve has boosted interest rates six times since last June to slow the economy and keep inflation under control.

Recent economic data -- including home sales, factory orders and unemployment -- suggests that those increases are beginning to produce the desired effect.

Given that, some economists believe the Fed may hold off on boosting interest rates again later this month. Tuesday's report, they said, won't impact the Fed's decision one way or the other.

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