Worker Output Rises in Quarter
Worker productivity surged in the final three months of 2001, another signal that the economy may be emerging from recession. But the improvement came at a price, as that rise was fueled by companies axing jobs and employee hours at the fastest clip in a decade.
The Labor Department reported Wednesday that productivity, or worker output of goods and services per hour outside the farm sector, increased at an annual rate of 3.5% from October to December. That follows a revised 1.1% gain in the third quarter of 2001.
“The U.S. economy has demonstrated we can achieve remarkable productivity under the most difficult circumstances,” Treasury Secretary Paul H. O’Neill told the House Budget Committee.
Economists say the gains were particularly impressive coming in a recession, when efficiency typically slides because workers have less to do. But productivity has held up surprisingly well during this downturn. After falling 0.1% in the first three months of the year, productivity growth has been in positive territory for three straight quarters.
That has boosted optimism that the trend can continue, though probably not at the sizzling pace of the most recent quarter.
“The [3.5% increase] was higher than expected ... and can’t be sustained,” said Sung Won Sohn, the Minneapolis-based chief economist of Wells Fargo & Co. “But it’s the foundation for future economic growth.”
Productivity gains are critical for increasing the nation’s standard of living. When productivity rises, employers can afford to pay higher wages because they are producing more with less.
Growing productivity also helps relieve inflationary pressures because output can grow without straining resources.
But rising productivity in the last few quarters hasn’t been good news for hundreds of thousands of U.S. workers who have had their hours cut or jobs eliminated. Part of the reason the productivity numbers have remained buoyant is because companies responded quickly to slumping sales, cutting worker hours faster than they reduced production.
Worker hours in the fourth quarter fell at a 3.7% rate, the steepest drop since the fourth quarter of 1991. By comparison, output fell at a 0.4% rate. More than 1 million U.S. workers have lost their jobs since the recession began in March of last year.
“It’s the dark underbelly of productivity,” said economist Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. “We’ve been seeing a situation where productivity is rising, but demand is falling, [worker] hours are falling and people are getting laid off .... It’s a mixed bag.”
Dhawan said it may be months before companies feel good enough about the economy’s direction to begin hiring again. Still, he said continued strength in the productivity numbers bodes well for the future.
“It tells me that the fundamentals of the economy are still strong,” he said.
For 2001, nonfarm business productivity rose 1.8%. That’s the weakest showing since 1995, and well below the 3.3% gain posted in 2000. It’s not far off the 2% average annual productivity recorded between 1990 and 2001, and well above the 1.4% annual average logged from 1979 to 1990.
Federal Reserve Chairman Alan Greenspan has expressed optimism that the solid productivity gains achieved through heavy investment in information technology over the last decade can persist, even though businesses have slashed investment in computers and equipment.
During testimony last month before the Senate Budget Committee, he expressed confidence that the gains in the 1990s weren’t a fluke.
“I think productivity gains will continue, certainly in the excess of what they did in the quarter century prior to 1995,” Greenspan said.
The rise in productivity in the fourth quarter helped to moderate unit labor costs, a closely watched gauge of inflation. Unit labor costs rose 3.9% last year, the biggest annual rise since 1990.
“With productivity holding up and labor costs under control, the prospects for a recovery of both the economy and profits look good,” said Joel Naroff of Naroff Economic Advisors in Holland, Pa.
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Times wire services were used in compiling this report.
