Productivity rises in U.S. amid economic slowdown

An increase in U.S. productivity during the first quarter could signal companies' adjustment to a slowing economy by shedding workers and cutting back on employees' work hours, according to The Wall Street Journal. In addition, labor costs grew at their slowest annual pace in four years, alleviating inflation concerns.

The U.S. Department of Labor says nonfarm business productivity—output per hour of work—increased at an annual rate of 2.2 percent during the first quarter and increased 3.2 percent from the first quarter of 2007, which is the biggest year-to-year rise in four years. Unit labor costs increased 2.2 percent in the first quarter and 0.2 percent from one year ago.

Labor is the largest expense when producing goods and services, and rising productivity allows economic growth without rising inflation or declining profits. Given the current economic slowdown, rising productivity shows companies have cut back on workers and hours worked; the number of hours worked decreased 1.8 percent, which is the biggest decrease in five years.

Productivity in the manufacturing sector rose 4.1 percent, which was almost double the average for the overall economy. In addition, consumer borrowing in March increased at an annual rate of 7.2 percent, which was more than double the 3.1 increase in February. Economists say the gain was much larger than expected.

Another contributing factor to productivity growth may be the weak dollar, which channels more of the economy's resources into export-related business. Studies show export-intensive industries tend to have more productivity growth than the economy-wide average. This can offset some of the lower productivity in fast-growing service sectors.

Date : 5/16/2008