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Archive for Thursday, September 6, 2001

Schedule reductions boost rate

September 6, 2001

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— Productivity, a key measure of living standards, rebounded in the second quarter as businesses slashed workers' hours by the largest amount in a decade.

The Labor Department reported Wednesday that productivity the amount of output per hour of work rose at an annual rate of 2.1 percent in the April-June quarter, after a scant 0.1 percent advance in the first three months of this year.

While the new estimate of second-quarter productivity is lower than the 2.5 percent growth rate reported a month ago, economists still viewed it as a solid gain.

The second-quarter increase came even as the nation's economy grew at its weakest pace in eight years.

In general, productivity tends to rise strongly when the economy is booming, but gains in productivity can become weak or fall when the economy slows as it did beginning in the second half of last year.

One of the main reasons productivity grew so much in the second quarter was because businesses, coping with the slowdown, cut workers' hours at a 2.6 percent rate, the biggest drop since the first quarter of 1991. Output fell at a rate of 0.5 percent, the first decline since the first quarter of 1993, when the country was emerging out of its last recession.

"Businesses had a glut of everything inventories, skilled workers. In cutting hours, they were simply trying to get themselves above water profit-wise," said Clifford Waldman, an economist for Waldman Associates.

In response to sagging sales, businesses have laid off thousands of employees, with the manufacturing industry hardest hit by the slump cutting payrolls by more than 800,000 in the 12 months ending in July.

Economists were expecting a downward revision to productivity because the economy had grown far more slowly in the second quarter than the government had initially thought. Last week, the government reported a 0.2 percent growth rate, versus the 0.7 percent growth rate originally reported.

Gains in productivity are the key to rising living standards because they allow wages to increase without triggering the inflation that would eat up those wage gains. If productivity falters, however, pressures for higher wages could force companies to raise prices, thus worsening inflation.

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