Productivity Rises As Hours Worked Drop

August 8, 2008 1:18 p.m. EST

Washington, D.C. (AHN) - The productivity in the U.S. increased in the second-quarter as companies slashed jobs and reduced working hours amid rising inflation.

But the rise in efficiency, a gauge of how much a worker produces for each hour of work, will not affect the Federal Reserve's decision to keep the key interest rates low at 2 percent.

The Labor Department released data on Friday showing nonfarm business productivity in the second quarter increased by 2.2 percent at an annual rate.

The first quarter gain was unrevised at a 2.6 percent, after the latest report showed that it missed the projected estimate of 2.7 percent by the market analysts.

Productivity in the second quarter of 2007 had increased by 2.8 percent, according to the Labor Department's report.

Output was reported to be at an annualized rate of 1.7 percent in the second quarter, while hours worked by employees dropped by 0.5 percent

Unit labor costs, which is an important measure of inflationary pressures, increased by 1.3 percent, less-than-forecast, compared to 1.5 percent gain a year earlier.

The unit labor costs grew from a 2.5 percent annualized rate in the first quarter.

While compensation, wages and benefits, increased at an annualized rate of 3.6 percent, compared to the 5.2 percent rise in the first quarter.

In the manufacturing sector, output declined 3.5 percent, which is largest drop since 2001, while hours worked dropped by 2 percent and real hourly compensation decreased by 0.4 percent.

The report released on Friday is the Labor Department's preliminary report on U.S. productivity and the department is expected to release final figures on September 4.