WASHINGTON — Productivity of U.S. companies rocketed at a 9.4 percent
annual rate in the third quarter, the best showing in 20 years, offering
an encouraging sign that the economic resurgence will be lasting.
The increase in productivity - the amount an employee produces per hour
of work - reported by the Labor Department on Wednesday was even
stronger than the 8.1 percent pace initially estimated for the
July-to-September quarter a month ago. It was up from a 7 percent growth
rate posted in the second quarter.
"The booming productivity gains are translating into better profits,
which are now inducing businesses to expand activities - namely
investing and hiring," said Mark Zandi, chief economist at Economy.com.
"The report suggests that the economic expansion that is now unfolding
will be solid and durable."
On Wall Street, the good news on productivity lifted stocks. The Dow
Jones industrials were up 31 points and the Nasdaq index gained 6 points
in morning trading.
The third-quarter's productivity gain, based on more complete data, was
better than the 9.2 percent growth rate economists were forecasting and
marked the strongest performance since the second quarter of 1983, when
productivity grew at a blistering 9.7 percent rate.
The report raised new hopes that businesses may be more confident than
before that the economic rebound is genuine.
For the economy's long-term health and for rising living standards,
productivity gains are vital. 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. And, productivity
can bolster a company's profitability.
That's particularly important in the current economic climate. As
profits improve, companies may be more willing to boost capital
investment and hiring - two crucial ingredients to the economy's
sustained recovery.
That labor market has recently shown signs of turning around.
The nation's payrolls are expected to grow in November for the fourth
month in a row by around 150,000, economists predict. The government
will release the employment report for November on Friday.
Businesses in the third quarter pumped out more and actually increased
workers' hours, compared with a long string of quarters where hours were
either cut or were flat.
Companies' output in the third quarter surged at a 10.3 percent rate,
the biggest increase since the third quarter of 1983. That was better
than the 8.8 percent growth rate previously estimated for the third
quarter and up from a 4.6 percent pace in the second quarter.
Workers' hours, meanwhile, increased at a 0.8 percent rate in the third
quarter, the best showing since the first quarter of 2000. That was
stronger than the 0.7 percent growth rate first estimated and better
than the 2.2 percent rate of decline registered in the second quarter.
Companies' unit labor costs fell at a rate of 5.8 percent in the third
quarter, boding well for profit margins. That was better than the 4.6
percent rate of decline previously estimated for the third quarter and
the 3.2 percent rate of decline reported for the second quarter.
Economists said the increase in workers' hours may be a harbinger of
stronger job creation in the months ahead. Businesses, economists said,
may be running out of ways to squeeze more out of existing workers to
meet customers' demands for goods and services.
With the job market improving and the economy gaining traction,
economists believe the Federal Reserve will hold a key short-term
interest rate at a 45-year low of 1 percent at its next meeting Dec. 9.
Copyright 2003 Associated Press. All rights reserved.
