Productivity Growth Best in 17 Years

Tuesday, August 8th 2000, 12:00 am
By: News On 6

WASHINGTON (AP) — Americans' productivity, a key measure of rising living standards, rose 5.3 percent in the April-June quarter, putting the gain over the past year at the fastest pace in 17 years, the Labor Department said Tuesday.

The second quarter gain in productivity — the amount of output per hour of work — represented a sharp acceleration from a 1.9 percent increase in the first quarter of this year.

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

The second quarter increase was stronger than had been expected. Analysts had been predicting a gain of around 4.5 percent.

With the strength exhibited in the second quarter, productivity has risen over the past 12 months by 5.1 percent, the best showing in 17 years, since a 5.3 percent gain for the 12 months ending in the third quarter of 1983.

The strong gain in productivity pushed unit labor costs, a key gauge of inflation pressures, down by 0.1 percent in the second quarter following a 1.9 percent increase in the first quarter.

With the second-quarter decline, unit labor costs over the past 12 months have dropped 0.4 percent, the first 12-month decline in 16 years and the largest 12-month drop since a 1.3 percent decrease in 1983.

The remarkable showing for productivity and unit labor costs should ease concerns at the Federal Reserve that the super-charged U.S. economy is in danger of triggering inflation pressures.

The Fed next meets on Aug. 22 and analysts are growing increasingly convinced that the central bank will leave rates unchanged, believing that the six rate increases over the past 14 months will be enough to slow the economy and keep inflation in check.

The Fed began raising rates in June 1999 because of a growing concern that the lowest unemployment rates in 30 years would trigger higher wage demands and set off a classic wage-price spiral.

However, those fears so far have not been realized, in large part because of the huge gains in productivity. Rising productivity allows employers to pay their workers more without triggering inflation because the gains in output cover the higher employment costs. Without those gains, employers would have to raise the price of their goods and services or cut profits to shareholders.

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.

While there is still a debate among economists over how much of the recent pickup in productivity is sustainable, Federal Reserve Chairman Alan Greenspan told Congress last month that he was growing more convinced that much of the rebound in productivity will endure.