U.S. Productivity Increases More Than Forecast (Update3)
Dec. 5 -- Worker productivity in the U.S. accelerated more than forecast in the third quarter, causing labor costs to drop by the most in four years.
Productivity, a measure of employee efficiency, rose at an annual rate of 6.3 percent, the most since 2003 and up from a 2.2 percent pace in the second quarter, the Labor Department said today in Washington. Labor expenses dropped at a 2 percent pace, also the most since 2003.
Greater efficiency eases pressure for companies to raise prices to counter rising energy costs, diminishing the threat of inflation. Lower labor costs will give Federal Reserve policy makers leeway to reduce interest rates to prevent the economy from slipping into a slowdown that will erode productivity.
``No question that the third quarter went out with a big roar in terms of both growth and productivity,'' said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts, who correctly forecast the gain. ``Inflation is a diminished threat.''
A separate report from ADP Employer Services said companies added 189,000 jobs in November, more than triple the amount economists had anticipated. The figures pushed Treasury notes lower, while the dollar extended its advance.
Economists forecast productivity would accelerate to a 5.9 percent pace, according to the median of 68 projections in a Bloomberg News survey. Projections ranged from increases of 4.9 percent to 6.3 percent. A preliminary estimate last month showed productivity grew at a 4.9 percent rate.
Price of Labor
Unit labor costs were expected to drop at a 1.2 percent rate, according to the Bloomberg News survey. Projections for unit labor costs ranged from declines of 0.2 percent to 2.4 percent.
Compensation for each hour worked increased at an annual rate of 4.2 percent in the third quarter, compared with a 1 percent rate in the prior three months.
Productivity at non-financial corporations, a measure watched by former Fed Chairman Alan Greenspan, climbed at a 4.2 percent rate in the third quarter, compared with 2.1 percent the previous three months.
Among manufacturers, productivity increased at a 5 percent pace in the last quarter, compared with a gain of 2.4 percent.
The third-quarter increase in productivity reflected the pickup in economic growth. The economy expanded at a 4.9 percent rate last quarter, the most in four years, according to a Commerce Department report last week.
That pace will not be sustained in the current quarter as consumer spending slows, most economists say. Peter Kretzmer, senior economist at Bank of America Corp., is forecasting growth of 0.1 percent in the fourth quarter. That is also likely to pull productivity down.
Rate Cut
Weaker growth and slowing inflation give the Fed room to keep lowering rates. Market futures signal the Fed will cut its benchmark lending rate at its Dec. 11 meeting, its third consecutive decline since September.
Fed Chairman Ben S. Bernanke last week signaled ``renewed turbulence'' in markets may have shifted risks between growth and inflation, cementing speculation the central bank will cut interest rates.
``Uncertainty surrounding the outlook'' is ``even greater than usual,'' requiring the Fed to be ``exceptionally alert and flexible,'' Bernanke said last week.
The Fed on Nov. 20 lowered forecasts for growth next year, in part reflecting the deepening recession in the housing market. Policy makers now expect U.S. gross domestic product to increase between 1.8 percent and 2.5 percent in 2008, ``notably below'' the 2.5 percent to 2.75 percent they predicted in July.
Rebound in Efficiency
Today's report may ease concern that the productivity surge that began in 1996 was waning. Efficiency gains have slowed every year since reaching a peak of 4.1 percent in 2002. Last year, productivity rose just 1 percent, the smallest increase since 1995.
Over the past 12 months, productivity increased 2.7 percent, the most since the second quarter of 2004. Unit labor costs increased 3 percent compared with the third quarter of last year, down from a 4.2 percent year-over-year gain in the previous quarter.
In the late 1990s, Greenspan was one of the first to recognize that productivity was accelerating, and that the improvement could help contain inflation even as the economy strengthened and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999.
Job Losses
Some companies including Citigroup Inc. are cutting staff or slowing the pace of hiring to boost productivity. The Labor Department may report Dec. 7 that 70,000 new jobs were created in November, down from 166,000 in October, according to a Bloomberg survey.
Citigroup, the largest U.S. bank, is reviewing ways to cut costs as it grapples with mortgage writedowns that may lead to the first quarterly loss since at least 1998, spokeswoman Christina Pretto said Nov. 26.
Executives at the bank ``are planning ways in which we can be more efficient and cost-effective to position our businesses in line with economic realities,'' said Pretto.
Parliament Speaker Receives Outgoing Belgian Ambassador
Parliament Speaker France Cukjati met in Ljubljana on Thursday, 23 August outgoing Belgian Ambassador Jean-Louis Mignot, who acquainted him with the political situation in Belgium after the general election in June. The officials also discussed the future of the EU and Kosovo, the parliament said in a press release.
Cukjati pointed out the difficulties to reach consensus on the future of the EU, adding that he believes all EU members will soon realise talks are needed for a joint solution.
The officials also agreed that a solution for the future status of Kosovo required a high level of consensus. Mignot pointed out Slovenia's role in solving the issue, particularly through parliamentary meetings during its approaching stint as EU president.
Cukjati said he was pleased that the new Serbian government was ready for talks, which indicated a positive development in seeking the final status for Kosovo.
"Those who know the history of people of Kosovo are very sceptical about a solution which would not include its independence. The problem is how to reach a solution in a peaceful way and to ensure rights of all ethnic groups in the province," said Cukjati.
Diplomatic mission of Hungary to Belarus to open December 10
Earlier the Hungarian embassy in Belarus was accredited in Moscow (on concurrent). As BelTA learnt from the diplomatic embassy of Belarus in Budapest, László Daróczi was appointed charge d’affaires in line with a relevant resolution approved by the Foreign Ministry of Hungary. He will act as the head of the diplomatic mission till Ambassador Extraordinary and Plenipotentiary of the Hungarian Republic to the Republic of Belarus is appointed.
The Hungarian embassy in Minsk is expected to start performing consular functions and issuing visas after settling all organizational issues relating to placing the diplomatic mission and its consular department and creating all necessary conditions for receiving visitors. Till that moment citizens of Belarus will have to follow the procedures for applying for the Hungarian entry visas established earlier.
| Hungarian, German party leaders hold talks in Hannover |  |
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| Berlin, December 4 (MTI) - Leaders of Hungary's centre-right parties, attending the Hannover congress of the Christian Democratic Union, held talks with senior CDU politicians in Hannover on Tuesday. Democratic Forum (MDF) leader Ibolya David, who met Federal Chancellor and CDU Chairperson Angela Merkel on Monday, held a discussion with Bundestag President Norbert Lammert on the two countries' political situation and the priorities of conservative social and economic policies. They agreed that an economic policy based on reality and free of populism was the only viable road for Germany and Europe as a whole. Parliamentary leader of the main opposition Fidesz party official Tibor Navracsics and CDU parliamentary leader Volker Kauder agreed that the two groups would coordinate their actions even more closely and would intensify cooperation. Navracsics and Bernhard Vogel, President of the Konrad Adenauer Foundation, who chaired the committee which drafted the new CDU platform, discussed coordination of the platforms of the two parties, running through a "final check-list." |
Bosnia set to initial EU agreement
The EU Enlargement Commissioner, Olli Rehn, arrives in Bosnia on Monday amidst expectations that he is to initial a key agreement after Bosnian politicians agreed crucial reforms. Progress on concluding a Stabilization and Association Agreement, SAA, had been held up for months by the failure of Bosnian leaders to implement long-delayed reforms to their country’s police service. Tensions increased since October when Bosnia’s top international official, Miroslav Lajcak, imposed changes to streamline the functioning of the central government and set December 1 as the deadline for parliament to adopt similar changes to its own procedures.
As the deadline was about to run out, late on Friday the parliament of Bosnia and Herzegovina (BiH) approved a compromise agreement on its disputed procedural system. „The adopted amendments are fully in line with the Constitution and the possibility to block the work of the parliament by not attending its sessions has been, to the extent possible, eliminated”, Lajcak said, welcoming the lawmakers’ decision to endorse his proposals. „It means that elected representatives must come to work and earn their salaries. This is a good day for Bosnia and Herzegovina and its citizens”, Lajcak said.
The breakthrough was also welcomed by the EU and other international officials. „This is a measure towards the normalization of the political situation in the country,” Rehn said in a statement. On Monday, the statement said, Rehn is to hold discussions in Sarajevo „with the BiH Presidency, the government, and party leaders to confirm whether there is sufficient agreement on the police reform to initial the Stabilization and Association Agreement.” Bosnian politicians said they were hopeful if an agreement was reached on police reform on Monday, the EU would be willing to initial the SAA agreement as early as Tuesday.
BiH’s outgoing Prime Minister, Nikola Spiric, who handed in his resignation in protest against Lajcak’s move to impose changes on his government’s functioning, has scheduled a cabinet session for Monday to press on with changes which are designed to integrate more closely the police forces of BiH’s two largely-autonomous entities. At its meeting the government is due to adopt an action plan based on the recent so-called Mostar declaration of Bosnia’s governing parties which signaled their agreement in principle on police reform. Many Bosnians are hoping that parliament’s approval of the streamlining of its procedures marks a breakthrough in the 18-month stand-off between their country and the EU, which in recent weeks degenerated into one of BiH’s worse political crises since the Dayton peace accords ended the 1992-95 war.
In addition to Spiric’s resignation, during the crisis Bosnian Serbs threatened to pull out of all joint institutions in the country to voice their anger over Lajcak’s decision to reduce the quorum and simplify voting procedures in the government and his proposals for similar measures in parliament. Friday’s compromise solution in parliament is in line with Lajcak’s initiative, but it also contains safeguards prevent „ethnic outvoting”, thereby dealing with the Bosnian Serbs’ concerns that their views might be ignored by a majority consisting of Bosniaks and Croats. With the parliament’s new procedures now adopted, BiH leaders still have to agree on similar mechanisms for the government, or Council of Ministers, based on those imposed by Lajcak. (BIRN)Slovakia will meet euro criteria
He said this would not require his government to curtail its public spending plans. The meeting also heard from Slovakia’s Finance Minister and central bank Governor. Fico said, „We should meet all the Maastricht criteria. Our budget deficit will be 2.5% for 2007, inflation will be around 1.9” in March, and should stay low after euro accession. We have been in the ERM II [Exchange Rate Mechanism] for two years, our national debt is at half the reference value. Long term interest rates are fully converged with euro zone levels.”
He added: „I can guarantee that our policy measures for social cohesion will not collide with our commitments on economic stability (…) We want strong social programs, with investment in education, healthcare and infrastructure, but our commitment is that this will not collide with the consolidation of our public finances (…) Slovakia joining the euro will be the best signal to other countries in the region that responsible macro-economic policies pay off.” Fico also said he welcomed the proposal from Economics Committee Chair Pervenche Berès (PES, FR) to have a monitoring mechanism for the prices of a dozen basic consumer items, to avoid real or perceived inflation around the euro changeover.
Sustainability of economic plans
David Casa (EPP-ED, MT) and Zsolt László Becsey (EPP-ED, HU) both asked about the sustainability of the inflation rate, especially, added Becsey, given Fico’s desire for high growth and a major social programme. Fico said „It is a devil’s plan to combine all of these. We will not sacrifice the citizens of Slovakia for the euro. But our plan is realistic.” Finance Minister Ján Počiatek described plans to reduce the government deficit to 0.8” of GDP by 2010 as „quite tough, but achievable.”
Monetary policy before and after euro accession
Both Robert Goebbels (PES, LU) and Elisa Ferreira (PES, PT) asked about monetary policy. Ivan Šramko, Governor of the National Bank of Slovakia, confirmed to Goebbels that for an open economy like Slovakia trying to set interest rates substantially different from those of the ECB would not have much effect, as businesses and consumers could simply arrange their financing in euro. Answering Ms Ferreira, he noted that Slovakia’s key interest rate was only 25 basis points about the ECB’s - and they would be the same before adopting the euro, so „there will be no sudden boom and then bust effect”.
Wolf Klinz (ALDE, DE) raised a different point, the „flat tax” adopted in Slovakia. Fico said his government had agreed to continue this policy until 2008-9 before assessing it, despite some changes to increase tax deductible items for people on lower incomes. „We have yet to draw our conclusions, but my view is that this is not a fair system. There are three parties in my government, if there were only one this policy might have changed, but I must respect the views of my partners.” Finally, Fico stressed to Zita Pleštinská (EPP-ED, SK) the efforts that would be made to communicate on the euro changeover, especially for vulnerable groups. Fico and his delegation were taking part in an informal meeting of MEPs from the Economic and Monetary Affairs Committee, arranged at his request. (EP Press)
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