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Mortgage News You Can Use U.S. Productivity Grows at 2.7 Percent Annual Rate, Down From 9.5 PercentFeb. 5 (Bloomberg) -- U.S. worker productivity grew at a 2.7 percent annual rate from October through December, less than a third of the previous quarter's pace, as employees worked more hours and companies boosted hiring to meet demand. Productivity, a measure of how much an employee produces for every hour of work, slowed from a 9.5 percent annual rate in the third quarter that was the strongest since the first three months of 2002, the Labor Department said in Washington. Winter weather pushed up jobless claims last week after they matched a three- year low, a separate report showed. Companies added 144,000 workers to their payrolls in the fourth quarter and hours worked rose the most in three years, suggesting businesses were no longer depending solely on efficiency gains to meet demand. Sales at retailers including Wal- Mart Stores Inc. and Limited Brands rose in January as customers bought more winter clothing and redeemed gift cards. ``We saw companies finally needing to increase the number of hours worked after cutting hours and workers through the prior three years,'' said Lynn Reaser, chief economist at Banc of America Investment Services in St. Louis, who correctly forecast the rise in productivity. ``This is a trend we will likely see followed in 2004. Companies will need to ramp up hiring.'' The economy will grow 4.6 percent this quarter, she estimates, after expanding at a 4 percent rate. Businesses probably added 175,000 workers to their payrolls last month, the biggest increase since November 2000, according to the median estimate in Bloomberg News survey of economists. The report, due from the Labor Department tomorrow, is also expected to show that the unemployment rate held at a 15-month low of 5.7 percent, according to the survey. Labor Costs The rise in productivity was enough to cause unit labor costs, or the amount paid for each unit of production, to fall 1.3 percent at an annual rate last quarter. The drop was the third straight and follows a 5.6 percent decline. Falling labor costs and rising sales are giving corporate profits a lift and may provide businesses with the means to boost hiring in coming months. Profits rose an average of 28.8 percent in the fourth quarter for the 347 companies in the Standard & Poor's 500 Index that had reported earnings by Tuesday. The gain is the largest since a 30.3 percent increase in the third quarter of 1993, according to Thomson Financial. ``Corporate profits are rising fast and that normally is a predictor of companies willingness to spend on both equipment and new hires,'' said William Cheney, chief economist at John Hancock Financial Services Inc. in Boston. ``We're getting the equipment purchases; now we just have to hope for the jobs.'' Jobless Claims Companies have slowed the pace of firings. The average number of Americans filing first-time applications for unemployment insurance claims fell last month, matching a three- year low, the Labor Department also reported today. Claims last week rose by 17,000 to 356,000, which may have reflected layoffs in the construction industry after snowstorms in parts of the country, a Labor Department spokesman said. For all of last year, productivity rose 4.2 percent following a 4.9 percent gain in 2002. The two-year average was the largest since 1950-1951. By keeping labor costs from rising, productivity improvements are helping to keep inflation low. Federal Reserve policy makers last week cited tame inflation as a reason why they can be ``patient'' in holding their target interest rate at an almost 46-year low of 1 percent. Because of stronger productivity, ``we at the Fed were able to be much more accommodative to the rise in economic growth than our past experiences would have deemed prudent,'' Fed Chairman Alan Greenspan said in a speech on Jan. 3. Cisco Productivity in the U.S. is five times that of Germany's, Europe biggest economy. In the third quarter, U.S. productivity was 5 percent higher than it was in the same three months of 2002. The year-over-year change in Germany was 0.9 percent. Cisco Systems Inc., the world's largest maker of equipment to link computers, said this week that sales rose 15 percent to $5.4 billion in the quarter ended Jan. 24, the most in three years. Productivity rose 6 percent during the quarter and is up 18 percent for the year, according to John Chambers, the company's chief executive. That's bringing the San Jose, California-based firm closer to the point where it will add additional staff. When sales exceed $700,000 per employee, ``I will start hiring again,'' said Chambers, in a radio interview with Bloomberg News Tuesday. Productivity gains last quarter pushed that mark to $632,000 per employee, according to Chambers. The Treasury's 4 1/4 percent note maturing in November 2013 fell 1/8 point, pushing up the yield 2 basis points to 4.13 percent at 10:25 a.m. New York time. A basis point is 0.01 percentage point. Low Inflation Retailers' January sales rose 5.8 percent, according to the International Council of Shopping Centers. January is typically a clearance month for retailers as they empty shelves of leftover holiday merchandise to prepare to stock spring shirts and dresses. Wal-Mart, the world's biggest retailer, had a more-than- forecast 5.7 percent gain from the year-earlier period. Limited, owner of the Victoria's Secret chain, said same-store sales surged 23 percent. Economists had expected productivity to rise at a 2.5 percent annual pace last quarter, based on the median of 55 forecasts in a Bloomberg News survey. The third-quarter gain was revised from a previously reported 9.4 percent pace. Today's report reflected the Commerce Department's benchmark revision to economic growth reported in December. Last Year Labor costs dropped 1.2 percent last year after falling 2.5 percent in 2002. Hours worked rose a 1.5 percent pace, the biggest since the first quarter of 2000, compared with a 0.8 percent rise in the third quarter. Output increased at a 4.2 percent rate compared with a 10.4 percent gain in the previous three months. Among manufacturers, productivity grew at a 4.8 percent pace after rising at a 9.7 percent rate in the third quarter. The economy grew at a 4 percent annual pace last quarter, helped by a 10 percent increase in business spending on equipment and software, the Commerce Department said last week. The rise in corporate investment followed a 17.6 percent gain in the previous quarter that was the biggest in five years. Growth will accelerate to a 4.4 percent annual pace this quarter, helping the world's largest economy expand 4.6 percent for the year, according to the consensus estimate of economists surveyed by Blue Chip Economic Indicators last month. It would be the strongest rate of growth since 1984. Back to Original Article: Mortgage News You Can Use
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