BBC Surprise surge in US productivity

Some analysts had predicted a market collapse

Business productivity in the United States leapt by 2.5% during the second quarter, coming in way ahead of expectations.

This is the largest increase in quarterly productivity - a key measure of output per worker in US business - since the second quarter of last year.

Wall Street analysts had forecast a gain of 1.5%, with the news of a larger rise helping ease fears that the US was racing towards a recession.

Some had even predicted that the US markets could have crashed, had the productivity figure been weak.

Financial markets around the world have been extremely nervous in recent weeks, as a string of poor corporate results - especially from the high-tech sector - raised fears of a global economic slowdown.

Good in parts

Wall Street cheered the productivity news, although share prices were depressed by separate concerns over earnings from semiconductor companies.

Particular positive emphasis was placed on the news that unit labour costs had risen by only 2.1% in the quarter, far less than analysts' expectations of 3%.

But there were some gloomier asides in the news.

On a year-on-year basis, productivity rose by only 1.6%, compared with a 2.5% gain in the first quarter.

This, the lowest annual increase since the fourth quarter of 1995, was caused by weak performance in the last few quarters.

Productivity growth during the first quarter of 2001 was just 0.1%.

And the Labor Department retrospectively revised downwards its figure for productivity growth in 2000, from 4.3% to 3%.

Prophet of doom

The reason the numbers were so closely watched was that there had been much talk of the technology-driven boom in US productivity during the 1990s.

Growing computer use in business, and in particular access to the internet, was thought to have made US workers far more productive than in previous decades, it was thought.

A weak number this time around, coupled with a hefty downward revision of historic numbers, could have proved that the internet-led "new economy" had done little for overall output.

At the end of last week, Albert Edwards, global equity strategist at investment bank Dresdner Kleinwort Wasserstein, warned that the industrial output figure could trigger a market collapse on Tuesday.

In a research note to clients, Mr Edwards wrote: "Make a date in your diary! The US 'new paradigm' will then be officially revised away! The risks of an equity crash are high.

"Investing in the US miracle will in retrospect be seen as a sick joke. The markets will be forced to confront this harsh reality on August 7."

-- Anonymous, August 07, 2001