U.S. First-Quarter Productivity Falls at 0.1% Annual Rate
By Carlos Torres - 05/08 08:29
Washington, May 8 (Bloomberg) -- The productivity of U.S. workers fell in the first
quarter for the first time in six years and labor costs accelerated, government
figures showed today.
Productivity, a measure of how much employees produce for every hour worked,
fell at a 0.1 percent annual rate in the January-March period, compared with the
fourth quarter's revised 2.0 percent rate of increase, the Labor Department said.
The decline was the first since productivity fell at a 0.8 percent annual rate in the
January-March period of 1995. Manufacturing productivity increased.
``The decline in spending on technology over the past two quarters has begun to
catch up with firms, which are resting on their laurels instead of investing for the
future,'' said Vincent Boberski, an economist at Dain Rauscher Inc. in Chicago,
before the report.
Unit labor costs, a gauge of wages and other expenses tied to productivity, rose
at a 5.2 percent annual rate in the first quarter, compared with a revised 4.5
percent pace of increase in the previous three months. The increase was the
highest since the fourth quarter of 1997.
Analysts expected a 1 percent pace of increase in first- quarter productivity after
a previously reported 2.2 percent rise in the fourth quarter. Analysts also
expected a 4.5 percent rate of increase in unit labor costs after a 4.3 percent rise
the previous quarter, according to a Bloomberg News survey.
Hours Worked Rise
Non-farm businesses increased worker hours at a faster pace than production in
the first quarter. Hours worked rose 2 percent at an annual rate after falling at a
1.3 percent pace in the previous three months. Output rose to a 1.9 percent rate
of increase in the first quarter from the fourth quarter's 0.8 percent increase.
Productivity for non-financial corporations, a category closely watched by Federal
Reserve Chairman Alan Greenspan, rose at 0.3 percent pace in the fourth
quarter, after a 4.4 percent rate in the third quarter. First-quarter figures for this
category won't be released for another month. Compared with the fourth quarter
of 1999, productivity for non-financial businesses was 3.3 percent higher.
First-quarter manufacturing productivity rose 0.3 percent at an annual rate
compared with a revised 5.5 percent gain the previous quarter.
Lagging Investment
Investment in information technology and computers has helped spur productivity
gains in the last five years. Since 1995, productivity has risen at a 2.8 percent
annual rate compared with about a 1 1/2 percent rate of increase for the prior two
decades.
Many Fed policy makers still expect efficiency gains through software, new
machinery, management innovations and improved worker skills to sustain a
record economic expansion that began 10 years ago.
``We may see weak productivity numbers in some quarterly reports,'' said
Michael Moskow, president of the Chicago Fed Bank, in a speech last week.
``But, over the longer term, average productivity growth should continue at
relatively high levels.''
Business investment in equipment and software nonetheless fell at a 2.1 percent
rate in the first quarter after a 3.3 percent rate of decline in the previous quarter,
Commerce Department figures show. The back-to-back declines were the first
since October 1990-March 1991, during the last recession.
Fed officials cited the drop in capital spending when they lowered their target for
the overnight bank lending rate to 4.5 percent last month, the fourth reduction
this year.
``Capital investment has continued to soften and the persistent erosion in current
and expected profitability, in combination with rising uncertainty about the
business outlook, seems poised to dampen capital spending going forward,''
officials said in the statement announcing the rate decision April 18. The Fed's
policy making Open Market Committee meets next week.
Profits Pinched
Slower productivity gains and rising labor costs are pinching corporate profits
because cooling consumer demand makes it difficult for businesses to raise
prices, analysts said.
First-quarter corporate profits fell 4.8 percent, the largest drop in almost 10
years, based on the 414 companies in the Standard & Poor's 500 Index that had
reported profits as of May 1.
Electronic Data Systems Corp., the second-largest U.S. computer-services
company, is one company that still has been able to profit from corporate
spending on technology.
Electronic Data said last month first-quarter profit rose 18 percent as new
contracts to manage other companies' networks surged. The company signed a
record $7.5 billion in new contracts in the period, 67 percent more than a year
earlier, as corporations sought ways to increase productivity.
``EDS has seen no slowdown in our overall market,'' said Dick Brown, the
company's chief executive officer. ``Companies around the world are continuing
to invest in the information technology segments we serve to boost their
productivity.''
Cutting Jobs
Companies are also cutting jobs to become more efficient. Minnesota Mining &
Manufacturing Co., the maker of products ranging from Post-It Notes to circuit
boards, said last month it will fire 5,000 workers, about half of those in the U.S.,
in order to reduce costs and be more productive.
``We've identified opportunities to streamline our supply chain and achieve other
structural improvements -- especially important now in light of the current, difficult
economic situation, and the reality that these conditions may last longer than
expected,'' said James McNerney, chief executive officer.
``Just the mere fact that we are shedding jobs quite rapidly even when economic
growth is still positive shows how eager companies are'' to preserve productivity
gains, said Steven Wieting, an economist at Salomon Smith Barney in New
York, before the report. |
