Productivity Rate Rebounds in Quarter

From Associated Press

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 Wednesday.

The Labor Department said productivity in the non-farm portion of the economy rebounded at a revised 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 was consistent with the recent slowing of the economy's growth rate.

But they said 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--suggested 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.

Output Increases

"The 0.7% increase is a low number but consistent with the cyclical problems that typically occur as growth slows down," said economist Roger Brinner of DRI-McGraw Hill. "Employers are reluctant to trim their work force so that when the economy downshifts you have to expect a dip in productivity growth."

The second-quarter improvement came as output grew at an annual rate of 2.4% while hours worked expanded by 1.7%.

Gains in productivity--output per hours worked--are seen as vital to economic growth at times of near full employment and tight labor markets in skilled jobs.

Improved productivity in manufacturing also helps U.S. competitiveness in world markets. Workers in manufacturing posted a productivity gain of 2.9% at an annual rate in the second quarter, up from the 2.4% increase reported in the preliminary data.

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

The preliminary data had put the hourly compensation increase at an annual rate of 5.5% and the decline in real wages at 0.9%. In the first quarter, hourly compensation rose at an annual rate of 4.8% and real wages declined 0.6%.

'Lean and Mean' Sector

The 2.9% annual rate productivity gain in manufacturing in the second quarter followed a 2.1% gain in the January-March period. Unit labor costs in manufacturing fell at an annual rate of 0.4% after increasing at an annual rate of 1.0% in the first quarter.

"We have a lean and mean manufacturing sector," said Sinai. "This is really something to cheer about in the continued strong performance in productivity and cost control in the manufacturing sector."

The second-quarter manufacturing gain came as output rose at an annual rate of 2.9%. The number of hours worked held steady after rising at an annual rate of 1.1% in the first quarter.

Factory workers saw their real wages fall at an annual rate of 3.7% in the second quarter, with inflation stripping away an increase of 2.4%, at an annual rate, in hourly compensation in manufacturing, the Labor Department said.

A separate figure that includes the farm sector of the economy showed that productivity rose at an annual rate of 1.3%, as output climbed 1.9% while hours worked rose by 0.6%. The report attributed that gain to improved productivity by farm workers.

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