- The Washington Times - Thursday, February 3, 2005


The productivity of American workers, the critical component for rising living standards, increased by 4.1 percent in 2004, capping a remarkable three-year period in which worker efficiency climbed at the fastest pace in a half-century.

However, the Labor Department reported yesterday that productivity for the final three months of the year was up at an annual rate of just 0.8 percent, which was the slowest quarterly increase in almost three years.

The rapid gains in productivity began slowing in the July-to-September quarter when productivity rose by 1.8 percent after increases of 3.7 percent in the first quarter and 3.9 percent in the second quarter last year.

Productivity, the amount of output produced for each hour of work, is the key factor in boosting living standards because it allows companies to pay their workers more based on their increased efficiency without having to resort to raising the price of their products, which would increase inflation.

Productivity rose by 4.4 percent in both 2003 and 2004. When combined with the 4.1 percent increase last year, the 4.3 percent average gain for those three years was the strongest burst in productivity since 1948 to 1951.

However, the downside of that increased efficiency is that companies, by getting more output from their existing work force, are able to avoid hiring new workers.

That was what occurred during the recession year of 2001 and the following two years in which job losses mounted as companies, pressed by increased global competition, strove to get increased production from slimmer work forces.

The strong productivity gains have kept the lid on inflation, but now with productivity slowing, some analysts are concerned that the Federal Reserve will abandon its gradual approach to raising interest rates should wage pressures begin to mount.

In another report, the Commerce Department said yesterday that orders to U.S. factories shot up a record 11.1 percent for all of 2004 despite the fact that order growth slowed to a modest 0.3 percent rise in December.

The December increase was the weakest showing since no increase in September. It reflected a 1.1 percent rise in orders for durable goods, which was revised up from a preliminary estimate of 0.6 percent, and a 0.6 percent decline in orders for nondurable goods, items not expected to last at least three years.

The 11.1 percent surge in factory orders for the year was the biggest gain on record, besting the previous high of 8.1 percent set in 1994. It followed four lackluster years as U.S. manufacturers suffered the loss of 2.9 million factory jobs since mid-2000. Factory orders fell by 6.9 percent during the recession year of 2001 and 1.9 percent in 2002 before posting a modest increase of 3.9 percent in 2003.

In a third report, the Labor Department said that the number of newly laid-off workers filing claims for unemployment benefits totaled a seasonally adjusted 316,000 last week, a decrease of 9,000 from the previous week, pushing new claims to the lowest level since early December. Claims had risen by 7,000 the previous week after having plunged by 49,000 for the week ending Jan. 15.

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