Posted on: Friday, March 5, 2004

Data signal firms ready to hire

By Carlos Torres
Bloomberg News Services

U.S. worker productivity grew last quarter at the slowest pace in a year, suggesting companies may increase hiring as the economy strengthens.

Output per hour of work rose at a 2.6 percent annual rate from October through December, less than the government's initial estimate last month and down from the third quarter's 9.5 percent, the Labor Department said in Washington yesterday.

Companies that can no longer squeeze more production from existing employees are beginning to hire, and tomorrow's jobs report may show the biggest monthly gain in three years.

"Labor is now beginning to garner a share of the economic pie that the corporate sector was previously keeping all to itself," said economist Joshua Shapiro of MFR Inc. in New York.

The number of Americans filing first-time claims for unemployment benefits last week fell by 7,000 to 345,000, close to a three-year low of 339,000 reached in December and January, the Labor Department said.

Economists estimate the economy created 130,000 jobs last month, the most since November 2000.

The gains are short of the 197,000 average increase during the record 10-year expansion that ended in March 2001, and President Bush is facing criticism from Democratic challenger John Kerry about the loss of 2.3 million jobs since he took office.

Employment "is always the last to improve" following a recession, Iowa Senator Charles Grassley said. Weak job creation is the result of "mostly productivity, but we are just about at the end" of the recent cycle of these gains.

Federal Reserve officials including Chairman Alan Greenspan and Governor Ben S. Bernanke have blamed the economy's inability to generate large numbers of new jobs on outsized productivity gains. The rate of 9.5 percent in the third quarter was the biggest since the second quarter of 1983. Today's figure was the lowest since a 2.3 percent in the last three months of 2002.

"I expect that companies will run out of the ability to keep extracting these gains," Bernanke said. "I'm sure that the current productivity growth rate is not sustainable, but I don't know precisely when productivity will slow and employment will thereby increase."

Productivity accelerated to an average increase of 2.4 percent a year from 1996 to 2001 compared with 1.6 percent in the previous two decades. The increases of the last two years are the first to exceed 4 percent back-to-back since record keeping began in 1947. Productivity has outpaced economic growth for the last three years, also the longest stretch ever.

The economy will probably grow 4.6 percent this year, the most since 1986, according to the median estimate in a poll of economists by Bloomberg News last month.