US Productivity Holds Its End Up

US productivity rose at an annual rate of 2.6 percent in the first three months of the year. This was the best showing in nine months but still way below the rapid clip so typical of recent years. This slowdown has long been expected by many economists as the US economy moved up to full capacity. The big question is how much productivity enhancing technological change is there in the pipeline. Knowing this would enable us to determine the 'cruising speed' for the US economy.

Federal Reserve Chairman Alan Greenspan, speaking by satellite to a conference in Chicago, said he believed there was still a "significant amount" of technological innovation that can be tapped to yield productivity gains.

"We know there is going to be increased innovation and increased productivity," he said, but the Fed chairman also said that forecasting exactly when it will occur is difficult.

With the solid increase in productivity — the amount of output per hour of work — unit labor costs rose by a moderate 2.2 percent in the first three months of the year. That was up slightly from a 1.7 percent rise in unit labor costs in the fourth quarter but far below the 4 percent surge in the third quarter of 2004.

But Steve Stanley, chief economist at RBS Greenwich Capital, said that over the past year, unit labor costs have stopped declining as they did in 2002 and 2003, and are now edging higher. He called this "another reason for the building concern among central bankers about inflation risks."
Source: Associated Press