Productivity Rises, Jobless Claims Fall

By John S. McClenahen The nonfarm business sector of the U.S. posted significantly higher productivity growth during the first quarter of this year than it did in the final quarter of 2003. Productivity, a product of output and hours worked, rose at a seasonally adjusted annual rate of 3.5% from January through March of this year, a full percentage point higher than the 2.5% growth rate recorded during the final three months of last year, the U.S. Labor Department reported May 6. Among manufacturers, productivity rose at a 3.1% rate during the first three months of 2004, as output increased 5.8% and hours worked grew 2.7%. This year's first-quarter productivity growth in manufacturing was, however, below the 4.8% rate achieved during the final quarter of 2003. The Labor Department also reported on May 6 that initial claims for jobless benefits fell to 315,000 last week, some 25,000 fewer than the previous week's revised figure of 340,000. The department's four-week moving average for initial claims also declined, falling by 3,750 to 343,250. "The bottom line is that strong productivity continues to dampen hiring plans and is keeping labor costs in check," says Jose A. Rasco, a senior economist at Merrill Lynch & Co., New York. But not everyone else agrees -- especially about hiring. For example, if initial claims for unemployment insurance remain at the current level, "hiring could accelerate further in coming months, keeping risks of Fed tightening [of the money supply] high," suggest the economists at UBS Investment Research, New York.

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