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To: Les H who wrote (57875)	8/8/2000 8:34:12 AM
From: UnBelievable	Respond to of 99985

2Q Productivity Surge Should Keep Fed On Hold =========================================================== Productivity !Surprise: Yes ! 2Q 1Q !Trend: Strong ! Nonfarm productivity 5.3% 1.9%r ! growth ! Unit labor costs -0.1% 1.8%r !Consensus: ! Hourly compensation 5.3% 4.8%r ! 4.5% ! =========================================================== WASHINGTON (Dow Jones)--U.S. workers were nearly three times as efficient in the second quarter as in the first, pushing unit labor costs down and giving the Federal Reserve another reason to leave interest rates unchanged this month. The Labor Department said Tuesday that nonfarm productivity rose at a 5.3% pace from April through June, up from the first quarter's revised 1.9% advance. Year-over-year, productivity rose 5.1%, the best performance since the third quarter of 1983. The second quarter boost in productivity involved the first year-on-year decline in unit labor costs since the first quarter of 1984. Those costs - the costs to a business of creating one unit of output - fell 0.4% between the second quarter of 1999 and the second quarter of 2000, the government said. In the second quarter, unit labor costs fell 0.1% after rising 1.9% in the first quarter. The numbers, sharply above Wall Street expectations, should cheer financial markets and cement the near-term outlook for interest rates. Amid recent signs of economic moderation and a pick-up in productivity, the Fed is not expected to raise interest rates when its policymakers next meet on Aug. 22. Federal funds futures contracts have priced in less than a 20% chance of an increase. When productivity rises, workers produce more goods and services per hour, which allows employers to boost wages without raising prices for consumers. "Clearly the readings on productivity gains and benign unit labor costs is comforting to the Fed and the financial markets," said economists at UBS Warburg. "These data continue to give the Fed the 'luxury' of letting the economy run at a very fast pace since reported inflation pressures remain low." Fed Chairman Alan Greenspan has recently expressed optimism that an expected economic slowdown will keep inflation at bay. However, he has said inflation will be held in check only if the economic slowdown doesn't coincide with a slowdown in productivity. "A lower overall rate of economic growth that did not carry with it a significant deterioration in productivity growth obviously would be a desireable outcome," Greenspan told lawmakers last month. "It could conceivably slow or even bring to a halt the deterioration in the balance of overall demand and potential supply in our economy." The Labor Department said hourly compensation rose 5.3% in the second quarter, up from 3.9% in the first quarter. Adjusted for inflation, however, hourly compensation rose just 1.6% after holding steady in the first quarter. In the manufacturing sector, productivity moderated in the second quarter, rising at a 5.1% pace following the first quarter's 7.9% increase. Overall business productivity rose at a 6.2% pace in the second quarter, up from 1.6% in the first quarter. Productivity gains were less impressive in the non-financial corporate sector, which Fed Chairman Alan Greenspan has called a "more accurate" gauge of general productivity trends. The government said productivity in that sector increased 2.9% in the second quarter compared with 4.3% in the first quarter. The number of hours worked by employees of non-financial companies grew 3.2%, while unit labor costs for such companies fell 0.2%. -Henry J. Pulizzi and Joseph Rebello; Dow Jones Newswires