- The Washington Times - Thursday, December 5, 2002

U.S. companies' productivity grew at a sizzling 5.1 percent rate during the summer, even faster than previously thought, and orders to factories rose in October for the first time in three months, both reports suggesting that the struggling economy will avoid falling into a new recession.
The performance was even better than the 4 percent rate estimated a month ago by the Labor Department, and represented a rebound from the tepid 1.7 percent rate in the second quarter.
Gains in productivity are helping keep a lid on inflation, an important factor for Federal Reserve policy-makers as they try to energize the economy through low interest rates.
Separately, factory orders rose 1.5 percent in October after falling in August and September, the Commerce Department said. That provided good news for the nation's manufacturers, who have been trying to overcome a late-summer rough patch.
Big-ticket manufactured goods, including cars and household appliances, posted a 2.4 percent increase in October and "nondurable" goods, such as clothes and food, rose 0.6 percent.
"The reports show that the economy by no means will go into a double-dip recession," said economist Clifford Waldman of Waldman Associates. "Consumers have enough energy to stay alive and keep the economy going because wages are growing at a healthy clip."
Gains in productivity are a crucial ingredient for the economy's long-term vitality. Healthy productivity increases allow the economy to grow faster without triggering inflation. Businesses are able to pay workers more without raising prices, which would eat up those wage gains. Strong productivity also helps lift companies' profits.
For the 12 months ending September, productivity grew at a 5.6 percent rate, the strongest showing since 1973.
Gross domestic product considered the best measure of the nation's economic health grew at a brisk 4 percent rate in the third quarter. But analysts are predicting that the summer spurt will be followed by a winter lull. Analysts are forecasting a fourth-quarter economic growth rate of just more than 1 percent.
The Federal Reserve last month cut a key interest rate to a 41-year low of 1.25 percent, with a goal to strengthen the recovery. It marked the first rate reduction this year and the 12th since January 2001. Analysts believe the Fed will hold rates at that low level at its next meeting Tuesday.
Companies kept work forces lean in the third quarter, producing more with existing workers.
Workers got paid for their efficiency. Hourly compensation, adjusted for inflation, jumped 3 percent, the biggest increase since the third quarter of 2000 and a huge improvement over the 0.5 percent in the second quarter of this year.
The rise in third-quarter productivity helped push down unit labor costs, good news for companies trying to control costs to boost profits.
Economists believe companies, concerned about a possible war with Iraq and other economic uncertainties, will keep work forces lean. That means the nation's unemployment rate will probably rise to 5.8 percent in November from the 5.7 percent in October, they said. The government will release the employment report for November tomorrow.

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