Washington, August 10-- The productivity of U.S. workers grew at its slowest pace in 18 months in the second quarter, which spurred a jump in the growth of unit labor costs from earlier this year.
Nonfarm-business productivity grew at a seasonally adjusted annual rate of 2.9% during the second quarter of 2004, the Labor Department said Tuesday. That was the smallest gain in productivity since the 1.6% increase recorded in the fourth quarter of 2002. In annual terms, the increase was 4.7% in the second quarter, the lowest rate in a year.
Economists had expected only a 2% rise in the productivity growth rate, according to a survey by Dow Jones Newswires and CNBC. Still, the performance suggested the long-predicted slowdown in productivity growth -- a key ingredient for a sustained job-market recovery -- may be materializing.
Unit labor costs -- a measure of how much companies paid workers for every unit of output they produced -- rose 1.9%, up from a 0.3% gain in the first quarter. In annual terms, however, unit labor costs rose only 0.2%. Hourly compensation was up a paltry 0.1% in the second quarter, adjusted for inflation.
Productivity growth, in the long run, increases prosperity by allowing businesses to raise wages without heightening the danger of inflation. But in the last few years, it has mainly allowed employers to make do with fewer workers. Since the summer of 2003, employers have replaced barely half of the 2.7 million non-farm jobs cut in the previous two-and-a-half years.
U.S. economists have predicted since 2001 that a slowdown in productivity growth was just around the corner. After the Sept. 11 terrorist attacks, many analysts speculated that expenditures on security would trim the productivity growth rate. Last month, Federal Reserve Chairman Alan Greenspan said a productivity slowdown would spur "significant" job growth.
"If, as I suspect is the case, productivity will slow down from the extraordinary levels of last year, growth will continue in the payrolls at a fairly significant pace," Greenspan told U.S. lawmakers after delivering a semi-annual report on monetary policy. Job growth has slowed markedly in each of the last four months, reaching a low of 32,000 jobs created in July. But Greenspan said "it does not look as the growth in employment is stalling."
