- The Washington Times - Saturday, August 9, 2008

Worker productivity in the U.S. grew in the second quarter as employers trimmed payrolls to weather the economic slump.

Productivity, a measure of employee output per hour, rose at a 2.2 percent annual rate, the Labor Department said Friday. The gain, which follows a 2.6 percent increase in the previous three months, was less than anticipated. Labor costs climbed at a 1.3 percent pace, also less than forecast.

The figures may help Federal Reserve Chairman Ben S. Bernanke, who forecasts that inflation will slow, keep interest rates unchanged through year-end. Companies eliminated 165,000 jobs last quarter to shore up profits, and still managed to get more output with fewer workers.

“Productivity still looks pretty good,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York, who used to work at the Fed. “We are seeing good cost control from businesses. It’s good news for the Fed.”

Revised Labor Department figures for the past three years showed productivity rose an average 1.4 percent from 2005 to 2007, down from a previously estimated 1.6 percent. Compared with the second quarter of last year, productivity rose 2.8 percent.

“Historically, productivity growth has tended to suffer during periods of energy-price shocks,” David Greenlaw, chief U.S. fixed-income economist at Morgan Stanley in New York, said in a note to clients. “The current year-over-year growth rate of just a shade under 3 percent demonstrates an impressive degree of resilience.”

Today’s report may also ease concern that the productivity surge that began in 1996 was waning. Efficiency increased an average 2.9 percent in the nine years ended in 2004.

In the 1990s, former Fed Chairman Alan Greenspan was one of the first to recognize productivity was accelerating because of the increased use of computers and the Internet, and that the improvement would contain inflation even as the economy gained strength and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999.

The risks of softening growth and rising inflation led central bankers to keep the benchmark rate unchanged at 2 percent this week.

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