- The Washington Times - Thursday, February 6, 2003

WASHINGTON, Feb. 6 (UPI) — The Labor Department said Thursday the productivity of American workers, a key measure of worker output for every hour on the job, posted its first decline during the fourth quarter since the second quarter of 2001.

The government agency said productivity declined at a 0.2 percent annual rate after growing at a robust 5.5 percent annual pace in the third quarter of 2002.

The fourth-quarter decline was the first since productivity posted a 0.1 percent drop back during the April through June quarter of 2001.

Most economists on Wall Street were expecting productivity to grow 0.5 percent during the quarter.

For all of 2002, productivity grew 4.7 percent, the most since 1950, the government said.

Productivity gauges how much output a worker produces in an hour on the job. Typically when it declines, employers are forced to offset increased wages by raising prices for consumers or accepting smaller profits.

But the inflationary hazard posed by slower productivity growth has been lessened slightly as the economy had exhibited some signs of strength, analysts noted.

Productivity gains boost corporate profits and reduce the risk of inflation. Because workers produce more goods and services per hour, employers can afford to pay them higher wages without having to pass on additional costs to consumers. That allows U.S. monetary policymakers to keep interest rates low.

The Federal Reserve, for example, has opted to leave its key interest rate at a 40-year low of 1.25 percent despite weakness in U.S. economic growth this year.

The report showed that unit labor costs, or the amount paid for each unit of production, rose at a 4.8 percent rate in the fourth quarter after a 0.1 percent rate of decline in the third quarter.

For all of 2002, unit labor costs declined 1.8 percent — its largest decline on record, the government said.

Unit labor costs were expected to rise at a 3.5 percent rate in the fourth quarter.

The Labor Department said hours worked increased at a 1 percent annual rate, the first gain since the first quarter of 2001.

Output slowed to a 0.8 percent rate of increase in the fourth quarter from a 5.2 percent pace in the third quarter.

Manufacturing productivity at the nation's factories rose at a 0.7 percent rate in the fourth quarter after increasing at a 5.5 percent rate in the third quarter.

The government updates its productivity estimate twice each quarter after separate releases on gross domestic product are issued.

Last week the Commerce Department reported the U.S. economy, as measured by the gross domestic product, expanded at a 0.7 percent annual pace during the fourth quarter after expanding a much faster 4 percent in the third quarter of last year. The fourth quarter growth was the slowest pace since the third quarter of 2001.

Economists were expecting GDP to expand at a 0.9 percent clip in the final quarter of 2002. The GDP expanded at a 1.3 percent annual pace during the second quarter of 2002 and expanded 5 percent in the first quarter of last year.

For all of 2002, gross domestic product, or the total output of goods and services produced in the United States expanded 2.4 percent, after growing a scant 0.3 percent in 2001 and grew at a 3.8 percent annual rate in all of 2000.

The GDP is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

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