Productivity hits slowest pace in year

? The productivity of U.S. companies grew at its most sluggish pace in a year during the second quarter as the nation’s economic recovery downshifted into a lower gear.

The Labor Department reported Friday that productivity the amount of output per hour of work rose at an annual rate of 1.1 percent in the April-June quarter, a sharp slowdown from the sizzling 8.6 percent growth rate posted in the first three months of this year.

Economists believed that the slowdown in the second quarter was temporary for this key ingredient to the economy’s long-term vitality. The outlook, they said, remains bright.

They noted that for the 12 months ending in June, which smoothes out quarterly fluctuations, productivity rose by a brisk 4.7 percent, the strongest showing since 1983.

“It’s hard to be pessimistic with productivity, the key to improved living standards, surging like that,” said Gerald Cohen, an economist.

Gains in productivity allow companies to pay workers more without raising prices, which would eat up those wage gains. And productivity gains permit the economy to grow faster without triggering inflation.

Analysts were forecasting a slowdown in productivity gains in the second quarter because the economy also was losing steam at the time. The economy grew at a rate of just 1.1 percent in the second quarter, down from a brisk 5 percent pace posted in the first quarter.

Even with the expected slowdown in productivity gains, Federal Reserve Chairman Alan Greenspan has said he remains bullish about the long-term prospects of productivity growth.

He and other economists have suggested that the strong productivity gains seen in the late 1990s weren’t just a passing fluke related to the economic boom and big investments by companies in productivity-enhancing computers and other high-tech equipment. Rather, those gains may reflect a more lasting change involving how companies are managed, structured and employ technology.

The 1.1 percent growth rate marked the weakest performance since the second quarter of 2001, when productivity actually dipped by 0.1 percent. Some economists forecast productivity in the second quarter would grow by as little as 0.5 percent, while others predicted a growth rate of 1.5 percent.

“Is the productivity glass half full or half empty? Half full.” said Ken Mayland, president of ClearView Economics.