Non-Farm Productivity in U.S. Rose at
Slower-Than-Expected Pace in 2nd Qtr
By Vince Golle
U.S. Second-Quarter Non-Farm Productivity Rose at 1.3% Rate
Washington, Aug. 5 (Bloomberg) -- U.S. worker productivity
posted a smaller-than-expected increase in the second quarter
which could be a sign businesses may resort to raising prices to
offset higher labor costs, government figures showed today.
Non-farm productivity rose at a 1.3 percent annual rate in
the second quarter after a revised first-quarter pace of 3.6
percent, the Labor Department said. In addition, unit labor costs
-- which measures changes in worker compensation -- rose at the
fastest pace in 1 1/2 years.
The report could ''be a little worrisome'' to Federal
Reserve Chairman Alan Greenspan, who suggested in congressional
testimony last week that ''we can't expect to be this productive
forever,'' said Chris Rupkey, senior financial economist at Bank
of Tokyo-Mitsubishi Ltd. in New York, before the report.
Greenspan's ''on record as saying that even if the labor
market doesn't tighten further, the Fed's going to have to look
at productivity and see if it's consistent with keeping a lid on
inflation,'' Rupkey said.
Still, ''I don't think this would show productivity, the
technology-based gains, are disappearing or rapidly eroding. It's
a one-quarter aberration,'' he said.
Second-quarter productivity rose 2.9 percent from the same
three months last year, Labor Department figures show. Also, unit
labor costs increased 1.4 percent compared with the second-
quarter 1998, close to the 1.3 percent year-over-year in the
first quarter and 2 percent for all of last year.
Before the report, economists expected a 1.9 percent
increase in non-farm productivity for the second quarter, down
from the 3.5 percent first-quarter increase originally reported.
Unit labor costs rose at a 3.8 percent annual rate in the
second quarter after a revised 0.8 percent increase in the first
quarter. The second-quarter increase was the biggest since a 4.1
percent rise in fourth quarter 1997. Analysts had expected a 2.2
percent increase in labor costs.
Hours worked rose 1.1 percent annual rate, after increasing
1.3 percent in the first quarter, while output increased at a 2.4
percent rate after a first-quarter gain of 5 percent.
Hourly wages adjusted for inflation rose at a 1.5 percent
annual rate in the second quarter following a 2.9 percent first-
quarter gain.
Price Deflator
The implicit price deflator -- a measure of inflation tied
to the productivity report -- rose at a 1.6 percent rate in the
second quarter after a 1.3 percent gain during the first three
months of the year.
Additionally, unit non-labor payments, which include such
items as taxes and rental payments, fell at a 2.3 percent rate in
the second quarter after a 2.4 percent gain in the first quarter.
For all of last year, productivity increased 2.2 percent.
Earlier today, the Labor Department reported the number of
first-time jobless claims rose 4,000 to 279,000 last week, the
second lowest level in two years.
Advances in productivity -- calculated as an index of worker
output per hour -- allow companies such as Minnesota,
Manufacturing & Mining Co. to reduce costs and boost sales. 3M's
earnings per share rose 9.6 percent in the second quarter
compared with the same three months in 1998, the company
announced last month, citing ''ongoing productivity improvement''
as reason.
The productivity statistics aren't expected to have a
bearing on the upcoming Aug. 24 meeting of Federal Reserve policy-
makers, economists at Merrill Lynch & Co. said in a report. While
unit labor costs rose in the quarter, they are slowing compared
with a year earlier, according to Merrill Lynch.
''Higher productivity growth has helped hold unit labor cost
increases to 1.1 percent in the past year, below even the lowest
inflation in over 30 years,'' said Mickey Levy and Peter
Kretzmer, economists at Banc of America Securities in New York in
a forecast report.
Greenspan
''If a firm pays its workers more money, but it is offset by
a commensurate gain in productivity, there is no pressure that
businessman to raise prices,'' said Stephen Slifer, chief
economist at Lehman Brothers in New York, in a report.
Increases in worker productivity and business efficiency are
important reasons the economy can expand, and wages can rise,
without inflation accelerating. Companies have invested heavily
in computers and other innovations to boost efficiency and reduce
costs.
It's become ''increasingly evident'' increases in
productivity growth are holding down inflationary pressures,
Greenspan said in congressional testimony last week.
After languishing at about 1 percent in the 1970s and 1980s,
productivity growth has been above 2 percent the past three
years. It's exceeded that pace over the past five of the six
quarters, Labor figures showed.
Still, ''should the increments of gains in technology that
have fostered productivity slow, any extant pressures in the
labor market should ultimately show through to product prices,''
Greenspan said.
That's why investors will watch tomorrow's employment
figures for July to gauge whether employment conditions are so
strong that they could spark inflation and lead Fed policy-makers
to raise interest rates at this month's meeting.
If the nation's unemployment rate falls any further than the
4.2 percent to 4.3 percent rate of recent months, that would be
''one indication that inflation risks were rising,'' Greenspan
told Congress.
''There can be little doubt that, if the pool of job seekers
shrinks sufficiently, upward pressures on wage costs are
inevitable,'' Greenspan said. ''Such cost increases have
invariably presaged rising inflation in the past, and presumably
would in the future, which would threaten the economic
expansion.'' |
