Productivity Growth Cools; Initial Unemployment Claims Rise

By John S. McClenahen The unexpected happened Feb. 5. The U.S. Labor Department reported that initial claims for unemployment insurance rose by 17,000 last week, a rise that was not generally anticipated, and that fourth-quarter 2003 productivity for the nonfarm sector of the U.S. economy rose 2.7%, less than expected. Initial claims for unemployment insurance totaled 356,000 for the week ending Jan. 31, an increase of 17,000 from the previous week's revised figure of 339,000. However, the Labor Department's four-week moving average for initial claims, which many economists consider to be indicator of underlying labor market conditions, was unchanged at 345,250. Economists had expected the nonfarm sector of the economy to post an annual growth rate of 3.3% in the final quarter of last year, about one-third the 9.3% rate in 2003's third quarter. The latest data put fourth-quarter growth at a 2.7% annual rate even as they raised the third-quarter rate to 9.5%. Manufacturing posted a higher rate of productivity increase from October through December last year than did the overall nonfarm economy. Productivity in manufacturing increased at an annual rate of 4.8% as productivity in durable goods manufacturing rose 6.4% and productivity among nondurable goods producers increased 3.8%. "The fourth-quarter productivity gains pushed productivity growth on a full year-over-year basis for 2003 to 4.2%, barely below the 4.9% 2002 peak," says UBS Investment Research, New York. "These exceptional gains -- the 10-year trend is 2.5% -- may be slightly overstated if, as we believe, current employment data are understating job growth. Even so, they testify to the rapid pace of technological innovation and exceptional pressures to remain competitive in a world of still-high spare capacity," notes UBS. "With profits rising strongly, pressure to keep costs under control could ebb this year, ushering in slower productivity growth, but stronger job gains."

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