- The Washington Times - Tuesday, December 7, 2004


The productivity of America’s workers grew at a 1.8 percent annual rate in the third quarter, the slowest pace in nearly two years, the government reported yesterday.

The deceleration in this vital economic indicator, however, raised some hope that employers who have squeezed so much efficiency out of their existing work forces might seek to boost hiring as a way to meet customer demand.

The Labor Department’s latest snapshot of productivity — the amount an employee produces for every hour of work — showed that efficiency gains were slightly weaker than the 1.9 percent growth rate first estimated for the July-to-September quarter.

The new figure, based on more complete data, marked a slowing from the 3.9 percent productivity pace logged in the second quarter.

“I think we are setting ourselves up for much better, firmer hiring,” said Anthony Chan, senior economist at JPMorgan Fleming Asset Management.

In other economic news, consumers stepped up their borrowing at a seasonally adjusted annual rate of 4.4 percent in October, or by $7.7 billion, from the previous month, the Federal Reserve reported.

Consumers’ borrowing appetite — led by higher demand for car loans and other nonrevolving credit — was stronger than the $6 billion increase analysts were expecting. In September, consumer credit surged at a 7.9 percent pace, or by a whopping $13.6 billion.

The Fed’s report includes credit-card debt and loans for such items as boats, cars and mobile homes. It does not include real-estate loans, such as home mortgages or popular home-equity loans.

On the productivity front, some analysts were expecting productivity to rise slightly to a 2 percent growth rate for the third quarter. Still, the long-term productivity trend remains healthy, economists say.

For the year ending in September, productivity increased by a solid 3.1 percent.

Efficiency gains are important to the economy’s long-term vitality. They allow the economy to grow faster without propelling inflation. Companies can pay workers more without raising prices, which would eat up those wage gains.

During the economic slump, however, gains in productivity came at the expense of workers. Companies were able to produce more with fewer employees.

But in the third quarter, output rose at a solid 4.2 percent rate and the hours of all workers increased at a 2.4 percent pace, the biggest advance since the third quarter of 1999. The economy added 402,000 jobs in the third quarter of this year.

With productivity slowing, though, unit labor costs rose at a 1.8 percent rate in the third quarter. Unit labor costs is a measure of how much companies pay workers for every unit of output they produce. The recent rise in these costs, should they continue, could put pressure on companies’ profit margins, analysts say.

Amid signs that inflation is creeping higher, the Federal Reserve is expected to boost short-term interest rates for a fifth time this year when it meets Tuesday.

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