U.S. First-Quarter Productivity Rises at 8.6% Rate; Labor Costs Down 5.4%
U.S. Economy: Productivity Gain Fastest in 19 Years
from Bloomberg
By Siobhan Hughes
Washington, May 7 (Bloomberg) -- U.S. productivity grew in the first three months of 2002 at the fastest pace in almost two decades as companies operated with leaner payrolls while the economy rebounded from recession.
The Labor Department's measure of work performed by one person in an hour rose at an 8.6 percent annual rate from January through March. Businesses cut worker hours for the fourth straight quarter and labor costs fell at the fastest pace since the second quarter of 1983.
``We've tried to reduce waste, redundancy and failure costs,'' Richard Davidson, chief executive of Union Pacific Corp., said in an interview. Productivity at the nation's No. 1 railroad rose 6.7 percent in the first quarter compared with the same period a year ago. ``That is something our employees think about every day. When you have a company as big as ours, there are a lot of opportunities out there.''
Gains in productivity allow the economy to grow without pushing up the costs of doing business. That keeps inflation in check, helps boost companies' profits and gives Federal Reserve policy makers room to wait before raising interest rates. The Fed's Open Market Committee voted unanimously today to keep the benchmark overnight bank lending rate at a 40-year low of 1.75 percent.
First-quarter productivity grew at the fastest pace since a 9.9 percent increase during the second quarter of 1983, when the economy was recovering from recession, and followed a 5.5 percent increase in the final three months of 2001. Businesses cut worker hours at a 1.9 percent annual rate from January to March, even as the economy grew at a 5.8 percent pace, the fastest in two years.
Labor Costs Fall
That allowed unit labor costs to fall at a 5.4 percent annual rate, also the largest decline since the second quarter of 1983. Compared with the first quarter of 2001, labor costs fell 0.9 percent, the first year-over-year drop since early in 1984.
``The gains from rising productivity are now flowing to companies, not employees,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York.
U.S. companies said they're more optimistic about business during the next 12 months and expect revenue to increase as the economy rebounds, according to a survey by the Institute for Supply Management.
About two out of three manufacturers said business will improve in the next year, the survey showed. The share of manufacturers that said business will pick up in the next six months rose to 63 percent from 59 percent in the group's December outlook.
Capital Investment
Still, manufacturers said they expect their capital expenditures to fall an average of 8.7 percent in 2002. About 47 percent said they expect to invest less on plants, electronic components and other capital equipment, and 24 percent expect an increase.
The productivity report was released hours before the FOMC announced its decision for a third straight meeting to keep interest rates unchanged. All 62 economists in a Bloomberg News survey had expected the decision, and the implied yield on the July fed funds futures contract shows traders don't foresee a rate increase until August at the earliest.
Fed officials point to productivity gains as the reason the economy was able to survive the most recent recession with only one quarter of contraction.
Greenspan
``The magnitude of the gains in productivity over the past year provides further evidence of improvement in the underlying pace of structural labor productivity,'' Fed Chairman Alan Greenspan told Congress last month. ``This development augurs well for firms' ability to grant wage increases to their employees without putting upward pressure on prices.''
Analysts had expected productivity to grow at a 7 percent annual rate, based on the median of 60 forecasts in a Bloomberg News survey. They had also expected unit labor costs to drop at a 3.6 percent annual rate.
Productivity typically surges during economic recoveries, such as the present one from a recession that began in March 2001, as employees who were idle contend with increased workloads. While good for corporate profits, productivity gains may temporarily deter hiring. The unemployment rate rose to a 7 1/2-year high of 6 percent last month, and the economy added workers for only the first time since last July.
Output in the first quarter rose at a 6.5 percent rate, the fastest since the second quarter of 2000, as General Motors Corp. and other carmakers produced more vehicles. Output rose at a 1.5 percent rate in the fourth quarter.
Factory Production
Factories in particular made progress in becoming more efficient. Productivity at U.S. manufacturers grew at a 9.7 percent annual rate in the first quarter, the fastest gain since the fourth quarter of 1999.
One reason manufacturers increased production was to rebuild inventories, which fell to record lows late last year. U.S. wholesale inventories were unchanged in March, after a 0.9 percent decline in February. March was the first time in 10 months the level of inventories at the wholesale level hasn't declined.
Productivity at non-financial corporations, a measure watched by the Fed, grew at an 11.2 percent pace in the fourth quarter, the largest increase since the second quarter of 1975, the Labor Department said. That number lags the other productivity data by a quarter.
Union Pacific
Union Pacific has added more fuel-efficient and powerful locomotives to its fleet and uses a global positioning system to better maintain tracks, Davidson said.
``We are hauling more freight than before the Southern Pacific merger with 500 or 600 fewer locomotives,'' he said. Union Pacific merged with Southern Pacific in 1996.
Railroads count productivity in gross ton-miles per employee, which measures how much and how far freight is carried for each worker on the payroll. A ton-mile is 1 ton of freight carried 1 mile. In the first quarter, Union Pacific had 47,236 workers and carried 240 billion ton-miles. A year ago, employment was higher at 48,760 workers, and ton-miles were lower at 232 billion.
In 1983, the last time productivity grew this much, the economy went on to expand at a 7.3 percent annual rate in the third quarter of 1983, 8.5 percent in the final three months and 9 percent in the first quarter of 1984.
``There is really no reason to believe that will not happen this time,'' said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania.
*****************
Best Regards, J.T. |
