Rate of Productivity Gain Slows

The Labor Department reported Thursday that productivity of U.S. workers rose in the third quarter at the slowest pace in almost two years, signaling that companies might begin adding workers at a faster rate to meet demand. A separate report showed that weekly jobless claims fell.

“From a job-growth point of view, the drop in productivity is good news,” said Tim McGee, chief economist at U.S. Trust Corp. in New York. “Businesses are to the point that, if they want to keep up with demand, they have to hire.”

The Labor Department said productivity -- a measure of how much an employee produces for every hour of work -- grew at a 1.9% annual rate, down from 3.9% in the previous three months. In addition, initial claims for unemployment benefits fell by 19,000 to 332,000 last week.

Analysts said companies were having trouble squeezing more efficiency from employees after improved technology and job cuts led to the biggest back-to-back productivity gains in 2002 and 2003.

The government report also said labor costs rose at a 1.6% annual rate for the third quarter ended Sept. 30, the fastest since 2003’s first quarter.

Economists had forecast that third-quarter productivity would grow at a 1.5% annual rate, down from the previously reported 2.5% rate for the second quarter, based on the median estimate of 62 economists surveyed by Bloomberg News.

Unit labor costs, or the amount paid for each unit of production, had been expected to rise 2.3% after a 1% gain in the second quarter.

Even with profits of corporations in the Standard & Poor’s 500 index forecast to rise 19% this year, companies including Ford Motor Co. and Sears, Roebuck & Co. have fewer workers than they did in 2001.

S&P; 500 companies employed 21.3 million people at the end of 2003, down from 21.5 million two years earlier, according to data compiled by Bloomberg.

Productivity rose 3.1% in the 12 months ended in September, down from a 4.9% year-over-year increase in June. Labor costs were up 0.6% in the 12-month period, the first year-over-year gain since the first quarter of 2003 and the biggest since July through September 2001.

Among manufacturers, productivity grew at a 4.3% annual pace after rising at an 8.3% rate from April through June.