By James Politi in Washington
Published: August 8 2008 16:10 | Last updated: August 8 2008 16:10
US productivity rose at an annualised rate of 2.2 per cent in the second quarter and labour costs jumped less than expected, easing inflation fears and dismissing any concerns that a 1970s-style wage-price spiral could start to unfold.
The data, released on Friday by the Labor Department, confirms one of the key elements of strength in the US economy. Even as growth has slowed and companies have cut jobs and hours, workers have been able to step up and maintain high levels of productivity. In the first quarter, US productivity grew at a pace of 2.6 per cent.
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The Federal Reserve this week decided to keep its main interest rate on hold at 2 per cent, highlighting both inflation risks and growth risks. Peter Morici, a professor at the University of Maryland business school, said strong productivity growth helped “limit inflation” and the Fed would now be able to “focus on the subprime crisis without fear of creating inflationary pressures beyond those imposed by international oil and commodity markets.“
Unit labour costs rose by 1.3 per cent on an annualised basis in the second quarter, which was less than expected by most economists. This signals that the labour market is so far reacting more to declining demand, as workers accept more modest wage increases to remain in their jobs, than to rising prices, which would have workers demanding higher wages to match soaring inflation.
Disappointing economists, however, were data showing that manufacturing productivity fell at an annualised pace of 1.4 per cent in the second quarter, the first dip in more than two years.
US economic news has been relatively gloomy recently, raising concerns that a sharper slowdown or even a contraction in growth might occur in the second half of 2008. Last week, the US reported a surprising uptick in the unemployment rate to 5.7 per cent in July, as jobs were shed for the seventh consecutive month. But some comfort was offered on Thursday by fresh data on pending home sales, which rose by 5.3 per cent in June, suggesting some stabilisation in the ailing US housing market may be in store.
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