Washington, DC, June 5--America's productivity improved in the first quarter of 2003 as companies produced more while keeping their work forces lean. The Labor Department reported Wednesday that productivity--the amount an employee produces per hour of work--grew at an annual rate of 1.9 percent from January through March.
That compares with the 1.6 percent growth previously estimated for the quarter and the 0.7 percent growth rate in the final quarter of 2002.
Companies have been able to meet customers' sluggish demand for goods and services by relying on fewer workers or existing employees, Federal Reserve Chairman Alan Greenspan and private economists have said.
That is contributing to a stagnant employment picture and made it difficult for people to find jobs, economists said. In the first quarter of 2003, the economy lost more than a quarter-million jobs.
“The speed rise in productivity is allowing output to expand even as employment shrinks,” said Maury Harris, chief economist at UBS Warburg.
The unemployment rate jumped to 6 percent in April as companies cut jobs for the third straight month. Economists believe the jobless rate will rise to 6.1 percent for May and that the economy will lose another 30,000 jobs during the month. The government on Friday will release the employment report for May.
The economy grew at a mediocre 1.9 percent rate in the first quarter of 2003. Economists say that when it hits a more normal growth rate of around 3 percent and higher, companies will feel more inclined to step up hiring.
For the economy's long-term health, solid productivity gains are important. They allow the economy to grow faster without triggering inflation. Companies can pay workers more without raising prices, which would eat up those wage gains.
While economists would rather see productivity go up, they would prefer that gains not come at the expense of job losses.
“Right now, it is a headache for the recovery because companies don't need more workers,” said Clifford Waldman, economist at Manufacturers Alliance/MAPI, a research group.
The productivity report showed that output in the first quarter of 2003 increased at a rate of 1.8 percent, compared with 1.7 percent in the previous quarter.
That slight improvement was costly for employees. Their hours dipped at a rate of 0.1 percent in the first quarter, compared with an increase of 0.9 percent in the fourth quarter.
For all of 2002, productivity grew by 4.8 percent. That occurred as companies boosted output by 2.7 percent, but reduced workers' hours by 2 percent.
The Federal Reserve has kept a key short-term interest rate at a 41-year low of 1.25 percent since November. The central bank believes that such low rates will motivate consumers and businesses to spend and invest more and help revive economic growth.
Economists say the odds are growing that the Fed will lower that key rate at its next meeting June 24-25.
