Worker Productivity Grows at 2.1% Rate in 2nd Quarter

U.S. worker productivity in the second quarter held close to the pace of the last five years even as economic growth slowed to a crawl, government figures showed.

Productivity, a gauge of how much an employee produces for every hour worked, rose at a 2.1% annual rate in the second quarter, up from a 0.1% rate in the prior three months, the Labor Department said. Productivity increases averaged 2.5% a year during 1996 to 2000.

Economists have debated whether the gains of the last half of the 1990s were transitory. Wednesday’s report suggests there’s little reason to doubt Federal Reserve Chairman Alan Greenspan’s frequent assertions that the gains are lasting. If he’s correct, the economy can grow more rapidly than once thought without adding to inflation pressures.

The second-quarter productivity figure was revised from the government’s initial estimate of a 2.5% rate of increase, reflecting the economic slowdown.

Unit labor costs, or the amount paid for each unit of production, increased at a 2.7% rate in the second quarter, about half the 5% rate of increase in the first quarter and the slowest in a year.

After languishing at a 1.4% annual rate from 1976 to 1995, productivity almost doubled that pace in the following five years as the economy boomed and investments in computers, the Internet and telecommunications paid off.

Productivity gains encouraged Greenspan and his fellow Fed policymakers to allow the economy to grow at least 4% a year from 1996 through mid-1999.

Profits and worker salaries surged as a consequence, contributing to higher stock prices and an improved standard of living.

Over the last year, the slowing economy has cut into productivity--and profits--as cooling demand left companies with less demand for goods and services. Business output, as measured in the productivity report, fell at a 0.5% pace from April through June, less than the 0.1% rate of increase originally reported, Labor Department figures showed.

Compared with the same period last year, productivity was up 1.5% in the second quarter. Unit labor costs were up 4.9% from the same three months in 2000.

Still, companies have refused to stand idly by as productivity slips. Businesses reduced the hours their employees worked at a 2.6% annual pace in the second quarter--the biggest decline since the first quarter of 1991.

Many economists expect productivity to rebound to levels seen in the late 1990s once the economy recovers. Their assumption is that businesses will keep innovating to remain competitive, boosting the U.S. economy’s growth as well as wages and profits.

Meanwhile, outplacement company Challenger, Gray & Christmas reported that U.S. companies laid off one-third fewer workers in August than in July.

The company’s monthly job cuts report showed 140,019 layoffs in August, 32% fewer than in July, but 145% more than in August a year earlier.