U.S.

U.S. Economic Vitality Still Strong

May 31, 2000 / 10:30 AM EDT / AP

Americans' productivity, a key to future prosperity, slowed to an annual growth rate of 2.4 percent in the first three months of the year, the government reported Tuesday.

The January-to-March gain in productivity - the amount of output per hour of work - followed a much sharper 6.9 percent increase in the final three months of last year, the Labor Department said. That increase had been the best quarterly performance in seven years.

Economists had been expecting productivity growth to slow in the first quarter and the latest reading produced no surprises. The 2.4 percent rate was the same as the government first estimated one month ago and it was right on target with analysts' expectations.

The first-quarter gain was the slowest quarterly performance since a 0.5 percent rate of increase in the second quarter of 1999.

Still, viewed over a longer period, workers are continuing to produce healthy productivity gains. Compared to the same quarter a year ago, productivity has increased at a solid 3.7 percent rate.

Productivity growth has doubled in the past four years compared to the previous two decades, a gain most economists attributed to heavy investment by businesses in computers and other productivity-enhancing equipment.

Productivity is the key factor that determines how fast Americans' living standards can rise. It's calculated by measuring the increase in economic output during a given quarter and subtracting the increase in hours worked to get a measurement of output per hour of work.

Economists consider healthy productivity gains the key to economic vitality and rising living standards. A sizable gain means a company can pay employees more, hold the line on prices and still deliver increased profits to shareholders. Computers, satellites and other technological advances are credited with helping to boost workers' efficiency.

The slowdown in productivity for all workers outside of farming was accompanied by an acceleration in unit labor costs, which rose at a rate of 1.6 percent in the first quarter. That was not as fast as the government previously estimated but was stronger than the 2.9 percent rate of decline posted in the fourth quarter. Unit labor costs are a key barometer of underlying inflation pressures.

The first-quarter increase in unit labor costs marked the fastest quarterly pace since a 4.2 percent growth rate in the second quarter of 1999.

Even with the pickup, unit labor costs, viewed over a longer period, are still at low levels. Compared with the first quarter of 1999, unit labor costs have risen by just 0.6 percent. For all of 1999, they rose by 1.6 percent.

The Federal Reserve has boosted interest rates six times since last June to slow the economy and keep inflation under control.

Signs of slower growth have emerged in recent economic data, including the latest unemployment report released last week which showed the jobless rate climbed t 4.1 percent in May and employers cut jobs. That prompted some economists to suggest that the Fed may decide not to boost interest rates again later this month.