The Economy: Productivity Gains Spark Optimism on Economy
Finally, there is some good news about the U.S. economy.</br></br>After weeks of troubling reports that suggested the U.S. economy stalled at the end of the summer, the Labor Department said nonfarm business productivity grew at an impressive 4% seasonally adjusted annual rate in the third quarter. That was more than double the 1.7% rate of the previous quarter, and a good indication that the underlying potential of the economy remains strong.</br></br>In the 12 months through September, nonfarm productivity grew 5.3%, its fastest rate in 19 years. Economists have attributed the gains to increased efficiencies from computers and the Internet, as well as the fact that employees that remain after a wave of layoffs tend to be more skilled. Although labor costs are rising, output is rising more than enough to compensate.</br></br>Such strong productivity doesn't necessarily change the short-term economic outlook, which remains somewhat gloomy. But it does suggest that corporate profits will continue to improve and that inflation will remain in check -- both of which are important if the economy is to get back on track.</br></br>When a company boosts productivity, it can squeeze more output from its existing workers without drastically increasing costs. At the same time, it helps keep a lid on inflation, as companies grow without incurring new expenses that they would otherwise pass on to customers.