Even though a number of businesses and industries have fewer employees, it didn't hurt productivity, as it grew by a 2.2 percent annual rate for the first quarter, according to the U.S. Labor Department. That's in contrast to the 1.8 percent increase in the fourth quarter of 2007. Productivity measures the hourly efficiency of a worker.
What this does is reduce inflation pressure, as labor costs are kept in check.
"Productivity is solid and labor costs are slowing and this will take the pressure off inflation and the Federal Reserve," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. "Unit labor costs have essentially come to a grinding halt and that should support corporate profits and allow businesses to hold the line on prices."
This is good news as it should keep the majority of businesses from having to increase prices; especially those selling to consumers, who are somewhat skittish at this time concerning prices of goods and services.
Economists in a Bloomberg News survey say they believe productivity will continue to rise, albeit at a slower annual rate of 1.5 percent. Including these increasing efficiencies, unit labor costs are projected to increase by 2.6 percent rate. Last quarter overall labor costs grew by 2.2 percent annually.
Productivity in the manufacturing sector grew by 4.1 percent in the quarter ending in March, a small decrease from the 4.2 percent gain in the fourth quarter.
The Labor Department report also revealed that existing workers have had their hours cut back 1.8 percent, which is the highest in five years.
For those with hourly wages, earnings rose slightly by 0.1 percent in April.
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