No need to hire people back heh? Worker Productivity Climbs
At 5.1% Rate in 3rd Quarter
Growth of 5.6% in Year Was Fastest Pace
Since 1966 and Faster Than Anticipated
By GREG IP
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- Worker productivity grew much faster in the third quarter than originally thought, and its growth over the past 12 months was at the fastest pace since 1966, a bullish sign for Americans' standard of living.
Productivity, or output per hour worked, rose at a brisk 5.1% annual rate at businesses, excluding farms, from the second quarter to the third quarter, the Labor Department reported. That rate is up from the previous estimate of 4% and a sharp advance from the second quarter's 1.7% pace. Productivity was up 5.6% from the third quarter of 2001, the highest rate since 1966.
Other reports indicated that service-sector growth accelerated in November, while factory activity grew after a drop in September.
Productivity is the ultimate determinant of how well Americans live. Gains in productivity enable companies to pay workers more without raising prices and the economy to grow faster without inflation. From 1974 to 1995, annual productivity growth was 1.4%, but in the next five years, it accelerated to 2.5%.
While it slowed during last year's recession, productivity didn't turn negative, as usually happens, and its increase during the recovery has been much faster than in most recoveries. While the acceleration of the past year is likely unsustainable, it supports the view of many economists and policy makers that the late-1990s pickup in productivity growth can be sustained over the long term.
"At a time when revenue advances have been anemic, companies have sustained themselves by becoming more efficient," said Steve Stanley, RBS Greenwich Capital economist. "If firms remain disciplined, profits will flow once demand picks up. But, for now, productivity growth is more of a defensive effort -- staying afloat by keeping costs down."
The rise in third-quarter productivity helped to push down the cost of salaries and benefits in producing a unit of output, good news for companies trying to control costs to boost profits. So-called unit labor costs fell at an annual rate of 0.2% in the third quarter, an improvement from the 2.2% growth rate in the second quarter. Such costs were down 2.2% from a year earlier. The declines recorded this year are the steepest since 1961.
Separately, the Institute for Supply Management said its index of nonmanufacturing activity, consisting mostly of services, rose to 57.4 in November from 53.1 in October. Readings above 50 indicate expansion, while readings under 50 denote contraction.
"Members' general comments continue to be mixed," the institute said in its report, adding that cost reductions and minimizing capital investment continue to be their priorities. The index of new orders rose strongly, while that of employment edged lower.
Also Wednesday, the Commerce Department said factory orders rose 1.5% to $322.57 billion in October, the first increase in three months, following a 2.4% fall in September. Within that total, orders for durable goods, those expected to last three or more years, rose 2.4%, less than the 2.8% gain reported in the government's "advance" report on durable goods last week. Orders for nondurable goods, such as clothing and food, rose 0.6% in October after a 0.3% rise in September.
Write to Greg Ip at greg.ip@wsj.com
Updated December 5, 2002 |
