|
Productivity turns weak
|
 |
August 5, 1999: 1:52 p.m. ET
American workers produced less and cost more than anticipated in 2Q
|
NEW YORK (CNNfn) - The productivity of the American labor force slowed for the second consecutive quarter while labor costs rose far more than expected, the government reported Thursday, heightening concerns that inflationary pressures may be accelerating again.
Second quarter productivity -- which measures how efficiently the nation's workforce produces goods and services -- climbed 1.3 percent, according to preliminary Labor Department statistics, far below both the anticipated gain and the preceding quarter.
That raised instant concerns on Wall Street of a pending rate hike, since the productivity figure is a favorite litmus test of Federal Reserve Chairman Alan Greenspan's to track inflation. Greenspan recently promised members of Congress he would act "promptly and forcefully" on interest rates if he senses any signs of rising inflation, despite the Fed's current "neutral" tightening bias.
Economists now believe an interest rate hike could be imminent later this month if Friday's unemployment rate report comes in below the estimated 4.3 percent level.
"I believe any decline would lock in a Fed increase with some certainty," Bruce Bartlett, an economist at the National Center for Policy Analysis, told CNNfn.
Wages overtaking output
Higher productivity levels mean businesses are able produce more goods and services without seeing similar increases in their payrolls. Inflationary pressures build when labor costs begin to keep pace or even accelerate faster than output.
Second-quarter output actually rose a strong 2.4 percent, although that was less than half the 5.0 percent rise posted during the first quarter. But hourly compensation jumped 5.1 percent after posting a 4.4 percent gain during the first quarter.
That led to a surprising 3.8 percent rise in unit labor costs, the largest jump since that figure climbed 4.1 percent in the fourth quarter of 1997.
"The data reflect that main concern that Mr. Greenspan has voiced in his recent comments, i.e., that with labor markets this tight, there is a real risk that compensation costs will accelerate faster than the ability of productivity gains to offset those costs, thus boosting unit labor costs and thereby generating price increases," said David Orr, chief economist with First Union Corp.
Orr noted the productivity numbers are notorious for displaying quarter-to-quarter volatility. However, he said there was "no getting around the acceleration in labor compensation costs," which has grown steadily for three consecutive quarters now.
Markets response subdued
The 1.3 percent rise in second quarter productivity was well below the revised 3.6 percent gain posted during the first quarter and less than the 1.8 percent growth economists surveyed by Reuters anticipated. It also marked the slowest productivity increase in a year.
Meanwhile, the second-quarter labor cost increase far eclipsed both the 2.2 percent gain economists predicted and the revised 0.8 percent rise posted during the first quarter.
Still, despite Wall Street's initial angst, financial markets generally had shrugged off the potentially troubling data by early afternoon.
The Dow Jones industrial average recovered nicely after shedding more than 100 points following the productivity announcement. By early afternoon, the Dow was up 38.31 to 10,713.80. The Nasdaq composite index also came off its morning lows, but still traded down 5.58 points to 2534.42.
The 30-year Treasury bond also wrote a turnaround story of its own. After losing more than half its morning gain following the announcement, the benchmark bond bounced up 19/32 of a point, yielding 6.05 percent.
Analysts said both the bond and stock markets once again may be a step ahead of the Fed by factoring in another rate increase already. 
|
|
|
|
|
|
Department of Labor
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
