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Productivity grows faster than expected


Washington – The productivity of America’s workers in the opening quarter of  2004 grew at a brisk 3.8 percent annual rate, faster than previously thought.  Labor costs moved up.

The increase in productivity-the amount an employee  produces for every hour on the job-was up from an initial estimate of a 3.5 percent  growth rate for the January-to-March quarter and exceeded the 2.5 percent pace  registered in the final quarter of 2003, the Labor Department reported Thursday.

The  new reading on first-quarter productivity was slightly better than the 3.7 percent  growth rate that some economists were predicting. It marked the best showing since  the third quarter of 2003.

Increased productivity and efficiency gains are  important to the economy’s long-term vitality. They allow the economy to grow  faster without igniting inflation.

Companies can pay workers more without  raising prices, which would eat up those wage gains.

In the productivity  report, companies in the first quarter boosted output at a 5.4 percent rate, stronger  than previously estimated and up from a 4.2 percent growth rate in the fourth  quarter. Workers’ hours, meanwhile, rose at a 1.5 percent rate, faster than first  estimated and following a 1.6 percent growth rate in the fourth quarter.

During  the economic slump, gains in productivity came at the expense of workers. Companies  produced more with fewer employees. But with the economy rebounding, companies  have slowly stepped up hiring and are boosting their efficiencies.

Hiring  increase

The nation’s payrolls grew by a sizable 288,000 in April, on top  of an even bigger gain of 337,000 in March, signs that the long awaited recovery  in the jobs market was finally coming to pass. Some analysts are expecting employment  to increase by a net 225,000 in May, which would provide further evidence of the  labor market’s improving health. The government releases the employment report  for May on Friday.





In  April the nation’s payrolls grew by 288,000, on top of a gain of 337,000 in March,  signs that the long awaited recovery in the jobs market was finally coming to  pass.  



Unit labor costs, meanwhile, rose at a 0.8 percent pace in the first  quarter, up from the previous estimate of a 0.5 percent pace and following a 1.7  percent rate of increase in the fourth quarter. Unit labor costs is a measure  of how much companies pay workers for every unit of output they produce. The recent  rise in these costs, should they continue, could put pressure on companies’ profit  margins, analysts say.

Consumer spending up

Consumers shopped with  renewed enthusiasm during May following a one-month break, giving many of the  nation’s biggest retailers solid sales gains.

Companies across retailing  sectors reported upbeat results, including Wal-Mart Stores Inc., Costco Wholesale  Corp., Limited Brands, Nordstrom Inc., Federated Department Stores Inc. and Talbots  Inc. The strong performance was reassuring after consumers pulled back in April  amid rising energy costs.

Initial claims for unemployment benefits fell  last week by a seasonally adjusted 6,000 to 339,000, the Labor Department said  in a second report that provided further evidence of an improving jobs market.  Claims hit a high last year of 444,000 in the middle of April and have slowly  drifted downward.

With the economy on a solid growth track, increasing numbers  of business analysts believe the Federal Reserve may increase short-term interest  rates for the first time in more than four years at its next meeting June 29-30.  The Fed’s main interest rate has been at a 46-year low of 1 percent since last  June.

Growth may slow

The economy grew at a 4.4 percent rate in  the first three months of this year and is expected to grow at a healthy, but  possibly slower, pace in the April-to-June quarter, some analysts say. With companies  feeling more confident about the staying power of the economic recovery, the jobs  picture has been improving.

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