U.S. business productivity growth slows

Reuters
November 06, 2008

U.S. business productivity growth slowed sharply during the third quarter in a sign that rising levels of unemployment were taking a toll on economic output.

The Labor Department said Thursday that productivity in the non-farm business sector grew at an annual rate of 1.1 percent, less than a third of the second quarter's 3.6 percent rate and down from 2.6 percent in the first quarter.

Output dropped at a 1.7-percent rate, its biggest quarterly plunge since a 2.9-percent fall in the third quarter of 2001.

Separately, the department said the number of U.S. workers filing new claims for jobless benefits fell 4,000 last week to 481,000, still a level that shows hiring under severe strain.

"It looks like the financial market crisis that hit us full force in September is starting to have a knock-on effect on Main Street and it's leading corporations to tighten their belts and start to cut staff," said Chris Rupkey, chief financial economist with Bank of Tokyo-Mitsubishi UFJ in New York.

U.S. Treasury debt prices pared gains after the data was issued, while stock futures were lower on the latest evidence of slackening economic activity.

On Friday, the department is set to release its report on October employment, with Wall Street economists forecasting that a whopping 200,000 more jobs will be slashed, a 10th straight month of declining payrolls.

While third-quarter productivity growth slowed, it still beat forecasts by Wall Street economists who had expected only a 0.8-percent rate of advance.
    
Productivity is a measure of hourly output per worker and is closely watched because variations in output have a strong influence on the ability to keep prices in check. Prices for many commodities have been falling as the economy continues to lose momentum.

"Overall, inflation is not a real concern whether it's from the labour market or commodities," said Adam York, an economic analyst with Wachovia Securities in Charlotte, N.C.

"A weak economy will exert downward price pressure. It's not an obstacle for the Fed to cut rates if it wants to do so at this point."

Unit labour costs, a gauge of inflation and profit pressures that the Federal Reserve monitors, jumped at a 3.6-percent annual rate in the third quarter after declining 0.1 percent in the second quarter. That was well ahead of forecasts for a 2.8-percent annual rate of increase.

The report showed that hours of work dropped at a 2.7-percent rate in the third quarter, a fifth straight quarter of decline. Real compensation per hour -- which takes into account the impact of rising prices on wage gains -- shrank for a third quarter in a row, falling at a 1.9 percent rate.

View all stories   |   View all clips