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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (39829)	6/5/2001 12:41:38 PM
From: IQBAL LATIF	Respond to of 50167

Labor productivity fell for the first time since 1995. Moreover, it fell by more than initially estimated. The 1.2% drop represents a distinct turnaround from performance in recent quarters. Initial estimates of output growth were stronger than many had anticipated, and were revised downward in the current release, leading to today’s downward revision. Adjusting labor costs for the output produced by workers, unit labor costs posted a 6.3% gain. This represents a significant acceleration in unit labor costs over recent quarters. A key question for economy-watchers has been whether the productivity improvements of the recent past will be sustained into the future due to investment in information technology, or whether they have been dominated by cyclical effects. Productivity is procyclical. When GDP growth is accelerating, as it does early in economic expansions, productivity growth increases. Similarly, when GDP growth is decelerating, as it is currently, productivity gains diminish. Thus, quarter-to-quarter changes in productivity growth are closely related to changes in the economy’s overall rate of growth. Thus, given the economy’s recent deceleration, a moderation in productivity growth was to be expected. Should the drop in productivity be sustained in further quarters, it would suggest that the strong productivity growth of the late 1990s had a larger cyclical component than many had thought. This will be a key point to watch in future releases. Going forward, the current expectation, given the data available to date, is that hours worked has dropped to a greater extent than output. As a consequence, while productivity in the second quarter will likely be weak, it will also likely be better than the first quarter’s performance. Although unit labor costs are rising, the Fed stated earlier this week that inflation was not currently a concern. Moreover, as the jobless rate has risen since the start of the year, some of the pressure on labor markets has eased.