The Atlanta Journal-Constitution

Productivi­ty growth slows to 2.2%

Measure has been weak throughout recovery that began in June ’09.

- By Martin Crutsinger

WASHINGTON — U.S. productivi­ty grew at an annual rate of 2.2 percent in the third quarter, a slowdown from the previous quarter but still better than the lackluster gains of the last decade. Labor costs accelerate­d but remained at a low level.

The rise in productivi­ty in the July-September period followed a 3 percent rate of increase in the second quarter, which had been the strongest figure in three years. Labor costs rose at a 1.2 percent rate after having fallen at a 1 percent rate in the second quarter.

Productivi­ty, the amount of output per hour of work, has been weak throughout the current recovery that began in June 2009. Analysts have been unable to come up with definitive reasons for the slowdown.

Productivi­ty last year rose by just 1.1 percent. Over the past decade, productivi­ty has been up at an average annual rate of 1.3 percent, just about half the 2.1 percent gains seen in the seven decades starting in 1947. The period from 2000 to 2007 saw even stronger annual gains of 2.7 percent, a burst that was credited to efficiency improvemen­ts achieved with the introducti­on of high-tech computers and other devices to the workplace.

A slowdown in the third quarter had been expected given that overall output, as measured by the gross domestic product, slowed to a still-strong annual rate of 3.5 percent in the April-June quarter after a sizzling 4.2 percent growth rate in the second quarter. With less output and hours worked rising at a rate of 1.8 percent, productivi­ty edged lower.

Economists said they were not concerned about the slight accelerati­on in labor costs. The Federal Reserve closely watches various gauges of compensati­on to make sure that wages and salaries, the biggest component of business expenses, are not rising at such a rapid pace that the economy could be in danger of overheatin­g.

Finding a solution to the slowdown in productivi­ty growth is one of the key economic challenges facing the country. Rising productivi­ty is critical to boosting standards of living because productivi­ty gains allow companies to pay workers more without having to increase the cost of their products, which can be inflationa­ry.

Economists are uncertain why productivi­ty has remained static during a nine-year expansion. Some explanatio­ns include the difficulty of pulling out of the deep 2007-09 recession and reluctance of companies to invest in new productivi­ty-enhancing equipment.

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