Friday, February 4, 2005

Rise in productivity historic, but slowing

Three-year increase in worker efficiency is easing, but analysts expect it to continue.

By Martin Crutsinger / Associated Press

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WASHINGTON -- The productivity of American workers, the critical component for rising living standards, increased 4.1 percent in 2004, capping a remarkable three-year period in which worker efficiency climbed at the fastest pace in a half century.

However, the Labor Department reported Thursday that productivity for the final three months of the year was up at an annual rate of just 0.8 percent, which was the slowest quarterly increase in almost three years.

The rapid gains in productivity began slowing in the July-September quarter when productivity rose just 1.8 percent after increases of 3.7 percent in the first quarter and 3.9 percent in the second quarter last year.

Private analysts said productivity growth, while slowing from the supercharged rates of the past three years, should remain healthy through 2005.

"We should see productivity settle in at rates just above 2 percent, which will be a solid level consistent with low inflation and low interest rates," said Mark Zandi, chief economist at Economy.com.

Productivity, the amount of output produced for each hour of work, is the key factor in boosting living standards because it allows companies to pay their workers more based on their increased efficiency without having to resort to raising the price of their products.

Productivity rose 4.4 percent in both 2003 and 2004. The 4.3 percent average annual gain for the past three years was the strongest productivity performance in more than a half-century of record keeping. The only three-year period that came close to that performance was a 4.2 percent average turned in from 1949 through 1951.

The downside of that increased efficiency is that companies, by getting more output from their work force, are able to avoid hiring new workers.

That is what occurred during the recession year of 2001 and the following two years in which job losses mounted as companies, pressed by increased global competition, strove to get increased production from slimmer work forces.

In another report, the Commerce Department said Thursday that orders to U.S. factories shot up a record 11.1 percent for all of 2004 despite the fact that order growth slowed to a modest 0.3 percent rise in December.