Productivity Takes Surprise Jump; Report Bolsters View That New Economic Era Has Begun
Government figures released yesterday provided potent ammunition for those who believe the U.S. economy has entered a new era in which technology and a more flexible labor market are making American companies more productive than before.</br></br>The Bureau of Labor Statistics reported that productivity -- which measures output per hour worked -- grew at an unexpectedly strong 2.5 percent rate in the second quarter, compared with a revised 0.1 percent rate in the previous quarter.</br></br>In large part, the improved efficiency in the April-June period resulted from companies' laying off workers and cutting work hours to bring labor costs into line with sluggish demand for their goods. But companies were able to increase overall national production slightly even with reduced workforces -- and the higher productivity figure didn't fit the usual pattern for recessions and slowdowns, when productivity typically begins to fall.</br></br>Furthermore, revised figures for 1998 through 2000 showed that productivity rose at an annual rate of 2.6 percent during that period. That is a bit lower than the 3.2 percent annual rate originally estimated, but it is still well above the pace recorded during most of the 1970s, '80s and early '90s. And it is robust enough to ease the concerns, voiced by some new-economy skeptics, that the productivity gains of recent years were illusory.</br></br>"If you believed before that there was some fundamental change in the way the economy functions, you should believe it still," said Neal Soss, an economist with Credit Suisse First Boston in New York.