Productivity Grows at 1.5% Pace in Second Quarter; Jobless Claims Fall

The productivity of U.S. companies grew at its most sluggish pace in a year during the second quarter as the nation's economic recovery lost momentum.

The Labor Department reported Thursday that productivity -- the amount of output per hour of work -- rose at an annual rate of 1.5 percent in the April-June quarter, according to revised figures.

While that was a better showing than the 1.1 percent rate estimated a month ago, it marked a slowdown from the brisk 8.6 percent growth rate posted in the first quarter.

Still, the latest reading on second-quarter productivity was stronger than the 1.2 percent growth rate some analysts were forecasting.

And, for the 12 months ending in June, which smooths out quarterly fluctuations, productivity rose by a sizable 4.8 percent, the best showing since 1983.

In a second report, new claims for unemployment insurance fell last week by a seasonally adjusted 8,000 to 403,000 after rising for three weeks in a row, the department said. Even with the decline, claims were at a level suggesting that the labor market remains sluggish.

For the last two weeks claims were above the 400,000 mark -- a level associated with a weak job market.

The more stable four-week moving average of claims, which smooths out weekly fluctuations, rose last week to 400,000, the highest level since June 8.

The number of unemployed people continuing to collect jobless benefits increased to 3.6 million for the week ending Aug 24, the most recent period for which the information is available. That indicates that not a lot of hiring is going on.

Some economists predict that nation's unemployment rate -- now at 5.9 percent -- probably edged up to 6 percent in August. The government releases its latest snapshot on employment on Friday.

With job growth expected to be weak in the months ahead, some economists also believe the jobless rate could move up to 6.3 percent or 6.5 percent by the fall.

Businesses, facing economic uncertainties, have been wary of making big commitments in hiring and in capital spending, two factors restraining the economy's recovery.

In the second quarter, businesses trimmed workers' hours at a rate of 0.7 percent, the same as previously estimated. Business output increased at a rate of 0.8 percent in the April-June period, stronger than previously thought.

With productivity growth moderating in the second quarter, unit labor costs -- what a worker is paid for each unit of production -- went up. Unit labor costs rose at a rate of 2.1 percent in the second quarter. compared with a 4.6 percent rate of decline in the first quarter.

Still, the revised figure on second-quarter unit labor costs, often looked at by economists as a measure of inflation, was better than the 2.4 percent growth rate first estimated and the 2.3 percent pace some economists were predicting.

Analysts were predicting a slowdown in productivity growth in the second quarter because the economy shifted into a lower gear in the spring. The economy grew at rate of 1.1 percent in the second quarter, compared with a brisk 5 percent pace in the first three months of this year.

The 1.5 percent productivity gain in the second quarter was the weakest since a 0.1 percent rate of decline in the second quarter of 2001.

Federal Reserve Chairman Alan Greenspan and other economists are bullish about the long-term prospects of productivity growth, a key ingredient to the economy's long-term vitality.

Gains in productivity allow companies to pay workers more without raising prices, which would eat up those wage gains. And, productivity gains permit the economy to grow faster without triggering inflation.

Fed policy-makers, hoping to quicken the pace of the recovery, have kept short-term interest rates at four-decade lows all year long. And, they have signaled they are willing to move rates lower if economic conditions warrant.

So far, the stagnant job market, eroding consumer confidence and the turbulent stock market haven't caused consumers -- the economy's lifeblood -- to dramatically trim spending. That's because those potentially negative factors have been offset by positive ones, including rising home values, low interest rates and a refinancing boom that has left people with extra cash.