Productivity

U.S. Productivity Surging

Although economists are generally suspicious of the Labor Department's quarterly productivity figures -- because they tend to bounce around from one quarter to another -- the latest figure is raising eyebrows because it is so strong.

  • After staying dormant for the past 20 years, output per hour worked shot up at a 4.5 percent annual rate in the third quarter of this year -- following a strong second-quarter gain.

  • Over the past year, it has climbed at a 2.5 percent annual rate -- a strong number in itself.

  • Worker compensation surged at a 4.2 percent annual rate in the third quarter -- after rising at a 3.3 percent pace in the second.

  • Economists say that since workers have been producing so much more, businesses' true labor costs actually slid at a 0.3 percent rate in the third quarter -- and have risen only 1.3 percent over the past year, the slowest advance since 1994.

Since the late 1970s, productivity growth has been confined to an anemic rate of barely 1 percent a year. So economists caution that it is too early to proclaim a permanent break with past trends.

Observers point out that businesses have been investing heavily in new equipment, computer systems and other technologies in recent years. The recent numbers may signal that those investments are beginning to pay dividends in the form of non-inflationary growth.

Productivity is key to the standard of living. If workers produce more per hour, companies can raise wages without passing on the cost to buyers.

Source: Christina Duff, "Productivity Jumped in Third Quarter," Wall Street Journal, November 14, 1997.

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