|Productivity Expands at a Faster Pace
By MARTIN CRUTSINGER
The Associated Press
Tuesday, December 6, 2005
WASHINGTON -- The productivity of American workers shot up at the
fastest pace in two years during the July-September quarter, helping
to ease fears that inflation pressures were threatening to get out of
The Labor Department reported Tuesday that productivity, the key
component for rising living standards, rose at an annual rate of 4.7
percent during the summer, a big upward revision from the 4.1 percent
initial estimate made a month ago.
The big jump in worker efficiency help to push labor costs down by 1
percent at an annual rate in third quarter, double the 0.5 percent
drop in unit labor costs that had originally been reported. The
stronger productivity and falling labor costs should help ease fears
at the Federal Reserve that overall inflation was on the verge of
worsening because of rising wage pressures.
Productivity is the key factor that determines whether living
standards are improving. Gains in productivity allow companies to pay
their workers higher salaries from their increased production without
having to increase the price of the products they sell, which would
The Fed is closely monitoring productivity and unit labor costs as it
determines how fast it needs to boost interest rates to keep inflation
Good gains in productivity and small increases in labor costs have
allowed the central bank to boost interest rates at a gradual pace
over the past 18 months. Analysts are looking for two more
quarter-point rate hikes in December and January, the final two
meetings for Chairman Alan Greenspan. And they believe his designated
successor, Ben Bernanke, will keep raising rates at least in the early
months of his tenure.
The 4.7 percent rate of increase for productivity in the third quarter
was sharply higher than the 2.1 percent increase for the April-June
quarter. It was the best showing since a 9.6 percent surge in the
third quarter of 2003.
The 1 percent drop in unit labor costs marked the second consecutive
quarter that labor costs have fallen after three quarters of big
increases that had raised worries that wage pressures were beginning
to mount. Unit labor costs declined at a 1.2 percent rate in the
The upward revision in productivity reflected the fact that the
government last week revised upward overall economic growth for the
third quarter to an annual rate of 4.3 percent. It had originally
estimated that the gross domestic product was growing at a 3.8 percent
rate in the third quarter.
The increased amount of output meant that workers had produced more
per hour of work than originally estimated.
President Bush, battling the lowest approval ratings of his
presidency, is seeking to draw attention to a spate of recent
indicators showing that the economy has regained its footing following
the blows from the Gulf Coast hurricanes and a surge in energy prices.
In a North Carolina speech on Monday, Bush declared that "this economy
is strong and the best days are yet to come for the American economy."
In addition to the solid upward revision to GDP and productivity, the
government on Friday reported that employment grew by a solid 215,000
in November, ending a two-month lull which had reflected sizable
layoffs in New Orleans and other areas along the Gulf Coast where
businesses had been devastated by hurricanes Katrina and Rita.
Michael Perelman wrote:
>You can increase productivity in two different ways, over and above the change in
>measurement that Jim described. You can do it by making workers more productive or you can
>do it by shutting down less productive facilities.
>Just as elimination of farm work is usually seen as a major factor in the historical rise
>of productivity, eliminating labor-intensive activities by substituting imports for
>domestic production also increases productivity.
>I agree with Doug that increasing exploitation is a major factor. Here at my school more
>and more administrative duties are dumped on the staff, while their numbers fall. Our last
>three secretaries would often come in on the weekend to catch up with their duties. One
>retired as soon as possible; the same will happen at the end of the year for our current
>secretary; the third moved to an easier job.
>You can chalk this up to an increase in efficiency, as the Washington Post suggests, but I
>think that the sweatshop is moving upscale.