graphic
News > Economy
Productivity jumps in 2Q
August 8, 2000: 11:44 a.m. ET

Worker output surges 5.3%, topping forecasts and lowering employer costs
graphic
graphic graphic
graphic
NEW YORK (CNNfn) - U.S. worker productivity picked up in the second quarter, almost tripling its advance from the first three months of the year and helping lower overall wage costs for employers, a government report released Tuesday showed.

The U.S. Labor Department said worker productivity rose at 5.3 percent pace in the quarter, topping the 4.5 percent gain expected by analysts surveyed by Briefing.com and well above the revised 1.9 percent gain posted in the first quarter.

graphicThe 5.3 percent gain is the annual rate of increase compared to the first quarter. For the comparison to year earlier result, productivity gained 5.1 percent, the biggest annual jump since the third quarter of 1983, when the economy was coming out of recession.

"That's the time when a big number is most likely, mainly when we're coming out of a recession," Charles Lieberman, chief economist for First Institutional Securities, told CNNfn's Before Hours program Tuesday. "At this stage of the business cycle, to be getting a 5 percent growth rate in productivity for a year is really very impressive."

The greater productivity allowed unit labor costs - a measure of what it costs employers on a per-hour basis -- to fall at a 0.1 percent rate in the quarter when compared to the first three months of the year, countering an expected gain seen by Reuters of 0.6 percent. The measure posted a year-over-year decrease in unit labor costs of 0.4 percent, the first such decrease since the first quarter of 1984.

"As long as the productivity numbers are very good, the higher wage gains can be offset by higher productivity gains," said Lieberman. "The question is can productivity continue to accelerate in keeping with the acceleration in labor costs. In the long run, the answer is clearly no. But in the short run, hey, it's great." (462KB WAV) (462KB AIFF)

Productivity is a focus for the Fed


In recent Congressional testimony Federal Reserve Chairman Alan Greenspan pointed to improved productivity as one of the keys to controlling inflationary pressures. Economists said this report should be just what Greenspan likes to see - strong productivity and no threat of wage inflation.

Analysts said Tuesday's report should further assure investors, who are hoping that the Fed does not raise interest rates when it meets Aug. 22.

"Clearly, there is no near-term inflation threat coming from the labor market," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. "In short, great numbers, which will prompt yet more talk of miracles."

Some question lasting impact of gains


Some economists questioned whether the gains reported Tuesday are structural gains due to increasing use of computers and the Internet by the nation's businesses, or perhaps short-term, cyclical improvements, driven partly by companies not filling open positions.

"The most recent acceleration in productivity growth looks like it was cyclically driven," said Mark Vitner, economist with First Union. "Even with output soaring, many businesses were reluctant to boost hiring because the Fed was hiking interest rates and energy costs were surging. Even if businesses wanted to hire more workers, many could not because the labor markets were so tight."

Still, other economists said the report's numbers suggest that the economy is proving that it can continue to grow with a reduced risk of inflation.

"The new figures will reinforce the views now emerging among policy-makers that the economy has more inflation resistance than in the past," said said Michael Moran, chief economist with Daiwa Securities America. "The gains also dampen the likelihood of (Fed interest rate) adjustments down the road. However, the new data does not assure that the Fed is done for this cycle."

U.S. stocks posted modest gains in morning trading, as investors had already anticipated a strong gain in second-quarter worker productivity, even if the magnitude of the gain was underestimated. Bonds rose following the report's release, driving yields lower early in the trading session.

Richmond Fed reports manufacturing slowdown


In a separate report Tuesday, the Federal Reserve of Richmond said activity in the manufacturing sector in its district in July was generally little changed despite a pullback in some sectors.

The seasonally adjusted shipments index was virtually unchanged at 3, while the new orders index edged down 5 points to settle at 9. The backlogs index turned negative, moving down 11 points to minus 4. Back to top

  RELATED STORIES

Greenspan in the House - July 25, 2000

Productivity gains slow - May 4, 2000

4Q productivity jumps - Mar. 7, 2000

  RELATED SITES

Department of Labor

Bureau of Labor Statistics

Productivity and Costs report

Federal Reserve Bank of Richmond

Richmond Fed Manufacturing Survey


Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney




graphic

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.