Are the Productivity number Good Enough 2.4% Growth??
Bloomberg:
U.S. 1st-Qtr Productivity Rose at 2.4% Annual Rate (Update2)
By Vince Golle
Washington, May 4 (Bloomberg) -- U.S. worker productivity
grew at a slower pace in the first quarter, while labor costs
increased, government figures showed today. Still, compared with
last year, productivity gains continued to show signs of
accelerating.
Non-farm productivity, a measure of output per hour worked,
rose at a 2.4 percent annual rate in the first three months of
this year, the Labor Department said. Analysts had expected a 3
percent rate of increase following productivity growth at a
revised 6.9 percent pace in the fourth quarter.
First quarter productivity was 3.7 percent higher than in the
first quarter of last year. That matched the year-over-year
increase of the fourth quarter 1999 and was the largest since a
4.2 percent gain in the fourth quarter 1992.
The statistics ``still suggest productivity is trending
higher and is a fairly impressive number,'' said Paul Ferley, an
economist at Harris Bank and Bank of Montreal in Toronto. ``It's
suggesting on the surface that rising productivity is limiting
cost pressures from labor markets.''
Unit labor costs rose at a 1.8 percent annual rate in the
first quarter after falling at revised 2.9 percent pace in the
final three months of last year. That was the first increase since
the second quarter 1999, when they jumped 4.2 percent.
Still, compared with last year's first quarter, labor costs
rose 0.7 percent, less than half the 1.6 percent rise for all of
last year. Also, compensation adjusted for inflation rose at a 0.3
percent annual rate in the first quarter, slower than the 0.9
percent pace in the fourth quarter.
Note Falls, Stock Futures Rise
The U.S. Treasury's 10-year note was little changed to yield
6.40 percent after the report and a speech on banking risk by
Federal Reserve Chairman Alan Greenspan, in which he didn't
mention the state of the economy or offer any clues about the
Fed's interest-rate policy. Some investors are concerned Fed
policy-makers will raise interest rates by a half a percentage
point when they meet May 16 to slow growth. Stocks opened lower in
New York trading.
Gains in productivity enable businesses to avoid raising
prices by absorbing higher labor and material costs. Federal
Reserve policy-makers watch productivity numbers for signs worker
shortages aren't causing inflation to accelerate.
The implicit price deflator -- a measure of inflation tied to
the productivity report -- increased at a 2.3 percent rate in the
first quarter following a fourth-quarter increase at a 1.9 percent
rate.
Total worker output grew at a 6 percent rate in the first
quarter, previously reported as increasing at 8.5 percent. The
number of hours worked rose at a 3.6 percent rate following a 1.5
percent annual rate.
GDP Increase
For all of last year, productivity increased 3 percent, up
from 2.8 percent in 1998.
In a separate report, the Labor Department also said the
number of Americans filing for initial jobless claims unexpectedly
rose 20,000 to 303,000 last week following a gain of 25,000 the
week before. Analysts had expected claims to fall to 273,000.
The gain in productivity was assured because gross domestic
product, or output, rose at a 5.4 percent annualized rate in the
quarter, the government reported last week.
After languishing at about 1 percent in the 1970s and 1980s,
productivity growth in all U.S. businesses has been nearly triple
that rate during the past three years. Higher productivity has
helped companies boost profits while keeping a lid on labor costs,
which account for about two-thirds of all business costs.
Cummins Engine Co., the world's leading maker of diesel
engines, deployed last month a computer program that simplifies
day-to-day business tasks for its employees, thereby reducing
operating costs and increasing business efficiencies. With Concur
Technologies' ``Concur Procurement,'' Cummins will be able to
streamline each step of its corporate procurement process -- from
purchasing a box of paper clips to a desktop computer.
Gains in productivity are crucial to the economy's ability to
continue growing without sparking higher inflation and can give
the Fed time to take a measured approach to raising interest
rates.
McDonough
``It is the strong productivity growth in the U.S. combined
with favorable world inflation environment that has helped keep
U.S. core inflation as controlled as it has been in recent
years,'' William McDonough, president of the Federal Reserve Bank
of New York, said yesterday in a New York speech.
Even with productivity gains averaging about 4 percent since
June, Fed policy-makers still have raised interest rates five
times, taking the overnight bank lending rate from 4.75 percent to
6 percent. They are expected to raise it again, possibly by as
much as a half a percentage point, at their next meeting May 16.
One reason has been that while increased productivity has
held down inflation, Fed officials have said they aren't sure
whether those gains can stay at the current level.
``We need to proceed with caution because there's a fair bit
of uncertainty about the economy's behavior right now,'' Robert
Parry, president of the Fed's San Francisco Bank, said in a speech
last month. Parry and McDonough are voting members of the Fed's
interest-rate setting Open Market Committee.
What's more, the gains in productivity that have helped hold
down inflation so far can't be counted on to keep prices from
rising forever because it creates expectations for ever-rising
corporate earnings, Greenspan said in February.
``This, in turn, not only spurs business investment but also
increases stock prices and the market value of assets held by
households, creating additional purchasing power for which no
additional goods or services have yet been produced,'' he said.
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