Productivity skyrockets

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The productivity of American workers soared by the largest amount in 20 years last quarter, raising hopes that the economic recovery is taking hold and businesses will step up hiring.

The Labor Department reported yesterday that productivity -- the amount an employee produces per hour of work -- rocketed at an annual rate of 9.4 percent in the July-to-September quarter, the best showing since the second quarter of 1983.

The figure, revised from a month ago based on more complete data, was even stronger than the government's first estimate of an impressive 8.1 percent productivity growth rate and represented an acceleration from the brisk 7 percent pace in the second quarter.

"The gains in productivity are helping companies' bottom lines so they can be less focused on cutting costs and more focused on expanding business and ultimately hiring more employees," said Lynn Reaser, chief economist at Bank of America Capital Management. "This is very good news for the sustainability of the recovery."

On Wall Street, the high-tech dominated Nasdaq Composite Index reached 2,000 and the Dow Jones Industrial Average came within 58 points of 10,000 in the early afternoon before both indexes retreated and closed mixed.

Nasdaq rose as high as 2,001 before falling back to 1,960, down 19.82, or 1 percent. The index, which suffered the worst losses during the bear market of the past few years, had not traded above 2,000 since Jan. 15, 2002.

The Dow, meanwhile, closed up 20, or 0.2 percent, at 9,873.

For the economy's long-term health and for rising living standards, productivity gains are vital. They allow the economy to grow faster without triggering inflation. Companies can pay workers more without raising prices, which would eat up those wage gains, and productivity can bolster a company's profitability.

That is particularly important in the current economic climate. As profits improve, companies may be more willing to boost capital investment and hiring -- two crucial ingredients for the recovery to last.