Americans' productivity, a key measure of
rising living standards, slowed to a 2.2 percent rate of growth in
the last three months of 2000 as the economy weakened.
Growth in productivity — the amount of output per hour of work —
during the October-December quarter followed a 3.0 percent rate in
the third quarter, the Labor Department said Tuesday.
The revised fourth-quarter figure was still a healthy gain and
was a better showing than the 2 percent rate of productivity growth
many analysts were expecting. But it was slightly weaker
performance than the 2.4 percent growth rate the government
previously estimated and was the smallest increase since a 2.1
percent rate in the first quarter of 2000.
Unit labor costs, a measure of inflation pressures, rose by a
rate of 4.3 percent in the fourth quarter, according to revised
figures. That was up from a 3.2 percent rate in the previous
quarter and a bit higher than the 4.1 percent rate the government
estimated one month ago.
The rise in fourth-quarter labor costs was the biggest since the
second quarter of 1999, when costs increased by the same amount.
Still, the fourth-quarter increase was not as strong as the 4.5
percent rate many analysts were forecasting.
Gains in productivity are the key to rising living standards
because they allow wages to increase without triggering higher
inflation that would offset those higher wages.
The slowdown in fourth-quarter productivity reflected the fact
that growth in the gross domestic product — the total output of
goods and services — also slowed sharply to an annual rate of 1.1
percent in the fourth quarter, the weakest performance in more than
five years. That was down sharply from rates of 5.6 percent and 2.2
percent in the second and third quarters, respectively.
Since productivity measures output per worker, when output
growth slows as it did between the third and fourth quarters,
productivity will also fall because the number of workers remained
essentially steady during the two quarters.
Seeking to prevent the faltering economy from skidding into a
recession, the Federal Reserve cut interest rates twice in January,
totaling a full percentage point. The rate cuts lower borrowing
costs, a move designed to spur business investment and consumer
spending, which would rev up economic growth. Many analysts believe
the Fed will cut rates for a third time at its next meeting March
20.
Fed Chairman Alan Greenspan, delivering his twice-a-year
economic outlook report to Congress, said solid productivity gains
made even as the economy has slowed dramatically provide support
for the view that they represent a lasting structural change in the
economy.
"The prospects for sustaining strong advances in productivity
in the years ahead remain favorable," Greenspan told the House
Financial Services Committee on Feb. 28.
Economists attribute the gains in productivity to massive
business investment in computers and other high-tech equipment.
For two decades, from 1973 to 1995, productivity showed
lackluster gains of just over 1 percent. However, since that time
productivity increases have doubled.
If productivity falters, however, pressures for higher wages
could force companies to raise their prices sharply, thus
triggering inflation. For all of 2000, productivity surged 4.3
percent, the best showing since 1983. Unit labor costs rose just
0.7 percent during the period, the smallest rise since 1996. The
annual figures were not revised.
