Factory Workers Lead Way as U.S. Productivity Rises

American workers posted a modest productivity improvement in the second quarter of the year, with significant gains by factory workers leading the way, the government said today.

The Labor Department said productivity in the non-farm portion of the economy increased at an annual rate of 0.7% in the April-June period, up from the 0.2% gain reported in preliminary data last month and much better than the 1.3% decline in the first quarter.

The department said unit labor costs--a key inflation indicator--increased at an annual rate of 4.9% in the quarter, down from the 6.2% jump reported for the first quarter but nonetheless a sign of persistent underlying inflation.

Analysts said the small productivity gain is consistent with the recent slowing of the economy’s growth rate.

They also said, however, that poor performance in the non-financial corporate sector--a category, including most service industries, in which productivity fell and labor costs rose at a rapid 11.1% annual rate--suggests that inflation was still around.

“The future in overall productivity growth is not encouraging” because the service-producing sector makes up roughly 80% of the economy, said Allen Sinai, chief economist for Boston Co. Economic Advisors.

The second-quarter improvement occurred because output grew at an annual rate of 2.4% and hours worked expanded by 1.7%.

The Labor Department said that hourly compensation rose at an annual rate of 5.6% in the quarter but that consumer inflation continued to more than erase the wage gains. Real hourly compensation--hourly compensation minus consumer inflation--fell 0.7%, the department said.