- The Washington Times - Thursday, February 5, 2004

ASSOCIATED PRESS

The productivity of America’s workers grew modestly in the final three months of 2003, raising hopes that companies will step up hiring to meet demand rather than relying solely on increased efficiency.

The Labor Department reported yesterday that productivity — the amount an employee produces for every hour on the job — grew at a 2.7 percent annual rate from October through December. Although that was a slowdown from the 9.5 percent rate for the three previous months, it nevertheless was a respectable pace that bodes well for the economy’s recovery, analysts said.

“You can squeeze only so much juice out of an orange. There is no question that businesses — seeing demand grow — are hiring more people in response to slowing productivity gains,” said Wells Fargo’s chief economist, Sung Won Sohn. “But how many people will be hired going forward — that is really a debatable question.”

For all of 2003, productivity grew by 4.2 percent, after a 4.9 percent increase in 2002.

Productivity gains are important to the economy’s long-term vitality. They allow the economy to grow faster without setting off inflation. Companies can pay workers more without raising prices, which would eat up those wage gains. Productivity can bolster a company’s profitability.

As profits improve, companies may be more willing to boost capital investment and hiring.

Economists are predicting the nation’s payrolls grew by around 180,000 jobs in January, compared with a net gain of 1,000 jobs in December. The government is releasing the employment report for January today.

Analysts are hopeful that companies — after having squeezed so much efficiencies out of existing workers last year — will expand their ranks of employees in the months ahead to meet customers’ demand.

Yesterday’s report had some encouraging signs to this end.

In the fourth quarter, companies’ output increased at a 4.2 percent annual rate, compared with a 10.4 percent rate in the third quarter.

Companies added 144,000 workers to their payrolls in the fourth quarter and hours worked rose at a rate of 1.5 percent. That was the largest increase since the first quarter of 2000 and compared with a 0.8 percent growth rate in the third quarter of last year.

During the economic slump, gains in productivity came at the expense of workers. Companies produced more with fewer employees. Although companies still are keeping their work forces relatively lean, they did pump out more with a modest increase to payrolls in the fourth quarter.

The increase in productivity helped lower companies’ labor costs at a rate of 1.3 percent.

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