Worker productivity up at 2.2 percent rate
WASHINGTON (AP) - May 7, 2008 The Labor Department reported Wednesday that productivity, the
amount of output per hour of work, increased at an annual rate of
2.2 percent in the first quarter. That was slightly higher than the
1.5 percent increase which had been expected.
In a sign that inflation could be easing, labor cost pressures
slowed a bit. Unit labor costs rose at an annual rate of 2.2
percent, down from a 2.8 percent rise in the final three months of
last year.
While rising wages and benefits are good for employees, those
increases can lead to higher inflation if businesses are forced
forced to boost the cost of their products to cover the higher
payroll costs.
However, if productivity is increasing it allows businesses to
finance higher wages out of the increased output.
The Federal Reserve, which is always on guard about the threat
of inflation, closely monitors developments in productivity since
wage pressures are often the key way that inflation gets out of
control.
The Fed last week boosted a key interest rate for the seventh
time since September, but the increase was a smaller quarter-point
move and the Fed signaled that it may pause its rate cutting
campaign in part because of concerns about inflation.
Analysts read the bigger-than-expected rise in productivity and
the smaller increase in unit labor costs as a good sign that
inflation pressures, at least on the labor front, are remaining
under control and the country is not facing the danger of any type
of wage-price spiral.
"There is certainly nothing to worry about here from a
cost-push inflation perspective," said Ian Shepherdson, chief U.S.
economist at High Frequency Economics.
Many analysts think that the country has already toppled into a
recession. But overall economic growth, as measured by the gross
domestic product, eked out a tiny 0.6 percent rate of increase in
the first three months of the year, the same anemic pace as the
final three months of last year.
The rise in productivity in the first three months of the year
occurred as the number of hours worked declined at an annual rate
of 1.8 percent.
That reflected layoffs that have been occurring as businesses
have cutback on their payrolls in the face of an economic slowdown
that has been triggered by a steep slump in housing and a severe
credit crunch that has resulted in billions of dollars of losses
from financial firms.
The 2.2 percent rate of productivity growth in the first quarter
was up slightly from a 1.8 percent increase in the fourth quarter
of last year.
Productivity for all of 2007 rose by 1.8 percent, up a bit from
the 1 percent gain in 2006. However, both of those increases were
far below the growth levels of the past decade as productivity
experienced a healthy rebound, reflecting all the investments that
had been made in productivity-enhancing equipment such as
computers.