The efficiency of American workers surged at a
6.4 percent rate in the final three months of 1999, marking the
strongest jump in productivity growth in seven years, the
government reported today.
That revised estimate pushed productivity growth for all of last
year to 3 percent, slightly better than the government previously
thought. It was the best showing on workers' efficiency gains since
a 4.1 percent increase in 1992.
The surge in fourth-quarter productivity defined as the amount of output for each hour of work was stronger than the 5 percent annual rate of growth the Labor Department reported one month ago. The government had initially pegged fourth-quarter productivity at
a 4.3 percent rate.
The new fourth-quarter estimate marked the biggest leap in
productivity growth since a 7.4 percent rate of increase at the end
of 1992. It also was in line with the 6.5 percent rate many
analysts were forecasting.
In the third quarter, productivity grew at a sizzling 5 percent
Economists consider healthy productivity gains the key to
prosperity and rising living standards. Sizable gains means
companies can pay employees more, hold the line on prices and still
deliver increased profits to shareholders. Computers, satellites
and other technological advances are credited with helping to boost
After booming in the 1950s and 1960s, productivity went into a
two-decade slump following the first Arab oil embargo in 1973. The
recent upturn in productivity since 1996 has left some analysts
believing that huge business investments in computers are finally
beginning to pay off and the country is in a new economic era that
will be marked by stronger productivity gains.
If productivity falters, however, pressures for higher wages
could force companies to raise their prices sharply, thus
For the fourth quarter, unit labor costs a key barometer of
underlying inflation pressures fell by a 2.5 percent rate, the
steepest decline since a 3.9 percent rate of decrease in the fourth
quarter of 1992. That means the costs of producing a particular
piece of merchandise fell.
For the year, unit labor costs rose 1.7 percent, the slowest
pace since a 1.6 percent increase in 1997.
The revised fourth-quarter estimate was an even better showing on unit labor costs than the 1 percent rate of decline the
government previously estimated and the 2 percent drop some
economists were expecting.
In the third quarter, unit labor costs fell by a 0.3 percent
The performance of unit labor costs is important because the
bulk of U.S. companies' expenses involve paying for wages, benefits
and other labor-related items.
The Federal Reserve bumped up interest rates four times since
June to slow the sizzling economy and keep inflation at bay. Given
the outlook for strong continuing growth, most analysts widely
expect the central bank to boost rates again on March 21.
On Monday, Fed Chairman Alan Greenspan expressed new worries
about an overheated economy and sounded a warning that interest
rates will be headed higher if the economy doesn't slow. Blue chip
Still, Greenspan said Americans are living through remarkable
economic times with a strong surge in workers' productivity helping
to boost incomes and keep inflation from being a problem. The
current expansion became the longest in U.S. history at 107 months
in February and this month is celebrating its ninth birthday.
"Our immediate goal at the Federal Reserve should be to
encourage the economic and financial conditions that will best
foster the technological innovation and investment that spur
structural productivity growth," Greenspan said in a speech
Greenspan said he didn't see any signs that the solid gains in productivity growth will peter out any time soon.
But even if the gains in productivity continue, they could have a downside for the economy by pushing soaring stock prices even
higher, Greenspan said. The Wall Street boom has contributed to the
surge in consumer demand as investors have spent their stock gains