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Companies Do More With Less

U.S. worker productivity shot ahead in the first quarter at the fastest pace in almost 19 years, the government reported Friday, as hard-pressed companies produced more with fewer workers.

Meanwhile, orders for U.S. manufactured items rose strongly in April, posting their biggest gain since October 2001, another government report said, providing further evidence of the recovery in the U.S. factory sector.

The Commerce Department said factory orders gained a larger-than-expected 1.2 percent to $323.87 billion in April after a revised 1.0 percent advance in March. New orders for durable goods — items meant to last for three or more years — rose 1.5 percent, bigger than the 1.1 percent gain previously reported.

The report showed strength across a variety of sectors. Orders for machinery rose 4.5 percent in the month, their biggest rise since March 2000. Orders for electrical equipment and appliances were up 9.6 percent. Computer and electronic parts products orders were up 3.0 percent.

Doing more with fewer workers means prices won't have to be raised, said CBS MarketWatch chief economist Irwin Kellner.

"Corporations can increase their profits, consumers can enjoy stable prices, and yet workers can pick up an increase in real buying power in terms of wages, so all-in-all it's a win-win-win situation for the U.S. economy," he said.

The Labor Department said non-farm productivity, or worker output of goods and services per hour outside the farm sector, grew at an annual rate of 8.4 percent in the first three months of the year — matching Wall Street expectations.

That was the largest rise since 9.9 percent growth logged in the second quarter of 1983 but somewhat weaker than a previously reported increase of 8.6 percent.

But the revised figure marked an improvement over the strong 5.5 percent productivity growth rate posted in the fourth quarter of 2001.

The report showed little sign of inflation, a key for Federal Reserve policy making. Unit labor costs, a closely watched gauge of wage pressures, fell 5.2 percent in the quarter, also meeting analyst expectations. Labor costs were previously reported falling 5.4 percent.

The big productivity gain recorded in the first quarter came at a price. Businesses, responding to the lingering effects of last year's recession, cut back on their payrolls. That caused the total number of hours worked to fall at a rate 2.1 percent. Output rose at a rate of 6.1 percent.

In the long run, productivity gains are good for workers, but not immediately for many.

"The unemployment rate is at a cycle high of 6 percent," said Kellner. We still have more than 400,000 people a week filing for unemployment benefits, and the number of people receiving unemployment benefits is the highest in many, many years."

In general, productivity tends to rise strongly when the economy is booming. But gains in productivity can become weak or productivity can fall when the economy slows or contracts.

For all of 2001, productivity grew by 1.9 percent, a slowdown from the 3.3 percent gain posted in 2000, but still a respectable showing given the slump.

The productivity increase "makes me confident that business will soon start to spend more on computers and other capital goods in order to continue this improvement and efficiency, so that profits can continue to grow in a low inflation environment," said Kellner.

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