Mrs. Peel, the Productivity Growth takes a big hit today......building on the "Productivity Myth" idea that
Morgan Stanley's Stephen Roach and Pimco's Bill Gross have been talking about.
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Tuesday June 5, 10:11 am Eastern Time
Productivity in Steepest Fall Since 1993
By Mark Egan
WASHINGTON (Reuters) - The productivity of U.S. workers logged its sharpest fall in eight years during the first three months of the year while signs of wage pressure emerged with the largest gain in labor costs in more than a decade, the government said on Tuesday.
The Labor Department said the productivity of workers outside the farm sector fell at an annual rate of 1.2 percent during the first three months of the year. That was much weaker than Labor's previous estimate of a 0.1 percent decline and followed a gain of 2 percent seen during the final three months of last year.
Unit labor costs -- a key gauge of inflation pressures -- soared at a 6.3 percent annual pace after a 4.5 percent advance during the last three months of last year.
The increase in labor costs was greater than the government's earlier estimate that they rose at a 5.2 percent annual pace in the January to March period, and marked the largest gain since a 6.8 percent advance in the last three months of 1990.
The report highlights a conundrum facing the Federal Reserve at its next interest-rate setting meeting at the end of this month. While the slump in productivity argues for further aggressive cuts in interest rates to foster economic growth, the potential for inflation implied by rising labor costs argues for a more cautious approach.
Productivity, measuring the amount of goods and services workers produce per hour, is crucial to rising living standards but has fallen steadily in recent quarters.
When workers' productivity grows, companies can produce more while holding down costs. The first-quarter decline in productivity was the steepest falloff since a 5.0 percent slump during the first three months of 1993.
``Productivity has been one of the centerpieces of the whole New Economy gains that we saw over the last couple of years with respect to being able to have strong growth and low inflation, so the drop in productivity deepens ... anxiety that the strong growth-low inflation scenario won't be as dominant a trend as it has been in recent years,'' said Kim Rupert, senior economist at Standard & Poor's MMS.
But many economists believe the productivity downturn is just a cyclical dip that will reverse as soon as economic growth picks up. Still, they find the surge in unit labor costs troubling.
``There is some concern,'' said Michael Swanson, senior economist at Wells Fargo bank in Minneapolis. ``You just can't see that kind of wage increases without productivity and not see it reflected in the price of goods and services later on.''
The numbers were broadly in line with Wall Street expectations. Economists polled by Reuters had forecast productivity would fall by 0.8 percent and unit labor costs would rise by 6 percent in the first three months of the year.
The data caused medium to long-dated Treasuries to soften slightly while short-dated issues were little changed. Stocks opened modestly higher. |
