Productivity Rate Climbs 2.4% During 3rd Quarter

The Labor Department reported that productivity climbed at an annual rate of 2.4% over the summer as American workers turned in their best performance in three years. But analysts called it a short-lived blip and a grim reminder that the recession has left fewer workers to churn out the nation’s goods.

“The gain was one of these short-term quarterly phenomena that won’t be repeated again,” said Michael Evans, who heads an economic forecasting firm in Washington. “We all know that the economy is going to slow down. It already has slowed down.”

From July to September, non-farm productivity, defined as output per hour of work, rose at an annual rate of 2.4%, the biggest advance since productivity increased 2.7% in the third quarter of 1988, the Labor Department said.

Increased productivity, or getting each worker to do more for each hour of work, is considered vital to improving Americans’ standard of living without increasing inflation.

During the third quarter, output rose faster than hours worked, meaning that the country’s productivity grew since there were fewer hours required to produce more in goods and services.

There were fewer hours worked, analysts said, because recession-induced layoffs left fewer workers on payrolls. That makes the productivity advance a mix of good and bad news, said Irwin Kellner, chief economist at Manufacturers Hanover Trust.

“The bad news is that people continue to lose their jobs. The good news is that those who are working were more productive and their living standard will go up. Their companies can earn more without having to incur more in labor costs,” Kellner said.

In the third quarter, output grew 3% while hours worked rose 0.6%. That combination resulted in the 2.4% advance in productivity, the first such rise in a year.

Productivity’s performance has mostly mirrored what’s happened to the overall U.S. economy for the past year, while the nation has been mired in recession. The economy grew in the third quarter after three consecutive quarters of decline.

During that time, productivity plunged 0.8% at the tail end of 1990, stayed flat in the first quarter of this year and then fell 0.3% in the second quarter.

The 0.3% decline in the second quarter was a revised number reported Tuesday; originally, the Labor Department had said productivity grew 0.5% during that three months.

Meanwhile, the report showed that unit labor costs, considered a key barometer of business costs, rose at a moderate annual rate of 1.1% in the third quarter, far under the 4.9% surge in labor costs from the second quarter.

Working Harder Non-farm business producitivity, percent changed from previous quarter at annual rate, seasonally adjusted. Third quarter, 1991: Preliminary: +2.4% Source: Labor Department