America's Productivity surges

Wednesday, September 6th 2000, 12:00 am
By: News On 6

WASHINGTON – Americans' productivity, a key measure of rising living standards, surged at a 5.7 percent rate in the second quarter, the fastest pace since the end of 1999.

The revised figure tracking the growth in productivity – the amount of output per hour of work – was even stronger than the 5.3 percent rate of growth the government estimated one month ago, the Labor Department said Wednesday.

Many analysts were expecting productivity growth in the April-June quarter to clock in at a 5.4 percent rate.

The latest reading on second-quarter productivity, which is seasonally adjusted, was considerably stronger than the first-quarter figure of 1.9 percent.

The strong gain in second-quarter productivity pushed unit labor costs, a key gauge of inflation pressures, down by a rate of 0.4 percent, the best showing since the end of 1999. That was a big improvement from the 1.9 percent rate of increase posted in the first quarter.

Gains in productivity are the key to rising living standards because they allow wages to increase without triggering higher inflation that would eat up those wage gains.

With the strength exhibited in the second quarter, productivity has risen by 5.2 percent from the same quarter a year ago. That was the best showing since a 5.3 percent increase in the third quarter of 1983.

Unit labor costs fell 0.4 percent from the second quarter of 1999, the lowest reading since a 1.3 percent drop in the fourth quarter of 1983.

The Federal Reserve has boosted interest rates six times since June 1999 to slow the economy and keep inflation under control.

For two decades, from 1973 to 1995, productivity showed lackluster gains of just over 1 percent. However, since that time productivity increases have more than doubled.

If productivity falters, pressures for higher wages could force companies to raise their prices sharply, thus triggering inflation.

Fed Chairman Alan Greenspan, in a speech last month, bolstered the view of many economists that the sizable pickup in productivity growth over the last several years represents a lasting structural change in the economy.

"It is still difficult to find credible evidence in the United States that the rate of structural productivity growth has stopped increasing," he said. But Greenspan added: "A tapering off in productivity acceleration is inevitable at some point in the future."