Productivity Jumps, Best Showing in a Year

WASHINGTON – American workers' productivity, a key measure of rising living standards, rebounded in the second quarter for its best showing in a year. However, revisions to prior years indicated the productivity boom has been less robust than previously reported.

The Labor Department reported Tuesday that productivity -- the amount of output per hour of work -- rose at an annual rate of 2.5 percent in the April-June quarter. A revision turned a negative first-quarter figure into a tiny 0.1 percent growth rate.

The second quarter's performance was better than the 1.5 percent growth rate many analysts were predicting and was the biggest gain since the second quarter of 2000, when productivity jumped by a 6.3 percent rate.

Productivity increased in the second quarter as output edged up at a 0.1 percent rate and hours of all workers fell at a 2.4 percent rate. That was the largest decline in hours since the first quarter of 1991.

The annual revisions showed that from 1996 through 2000, productivity growth averaged 2.5 percent, compared with the 2.8 percent average originally reported.

Annual revisions released Tuesday along with the quarterly figures are based on better data.

The biggest annual revision was for 2000, which showed productivity grew by 3.0 percent, rather than 4.3 percent, which had marked the best showing since 1983. Still, the 3.0 percent showing was the strongest since 1992.

That downward revision for last year in part reflected the fact that 2000 output, as measured by the gross domestic product, was recently revised to 4.1 percent from 5 percent. The government lowered its GDP estimate largely because it had overestimated business investment in computer software.

Tuesday's report also showed that unit labor costs, a gauge of inflation pressures, rose by a smaller-than-expected rate of 2.1 percent in the second quarter, a moderation from the 5.0 percent rate posted in the first quarter.

Gains in productivity are the key to rising living standards because they allow wages to increase without triggering inflation that would eat up those wage gains. If productivity falters, however, pressures for higher wages could forces companies to raise prices, thus worsening inflation.

Federal Reserve Chairman Alan Greenspan told Congress last month that he remains bullish about the long-term prospects of productivity growth and that the tiny gain in productivity seen in the first quarter represented only a temporary lull and was a byproduct of the sagging economy.

Massive business investment over the years in computers and other productivity-enhancing equipment has permanently improved the outlook for productivity, he has suggested.

Businesses, however, have cut back sharply in such capital investment in response to the yearlong economic slowdown.

"As for the years beyond this horizon, there is still, in my judgment, ample evidence that we are experiencing only a pause in the investment in a broad set of innovations that has elevated the underlying growth in productivity to a rate significantly above that of the two decades preceding 1995," Greenspan said. "By all evidence we are not yet dealing with maturing technologies that, after having sparkled for a half decade, are now in the process of fizzling out."

If Greenspan's assessment is correct, that would augur well for long-term projections for the federal budget surplus, which are based in part on the outlook for continued healthy productivity gains.

"Overall I think that the budget outlook does depend on productivity increasing at a pace faster than it did in the 20 years prior to 1995," Greenspan said last month. "I see no evidence to suggest that that has changed. "

For 1973 through 1995, productivity averaged lackluster gains of just above 1 percent per year. But since 1995 increases have more than doubled, allowing companies to pay workers higher salaries without raising the prices of their products.