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U.S. productivity rises 3.5%
Also, wage pressures remain well contained

WASHINGTON -- American workers' productivity increased at an annual rate of 3.5 percent in the first three months of the year while wage pressures remained well contained, the government said Tuesday.

Productivity, the output per hour of work, is considered the key measurement determining whether Americans' living standards will increase.Higher productivity means that employers can afford to pay workers more without raising the price of their products. That keeps inflation under control and means that workers' fatter paychecks will go farther.

The 3.5 percent increase in the annual rate of productivity growth for the January-March period represented a slight downward revision from the Labor Department's initial estimate a month ago that productivity had risen 4 percent in the first three months of the year.

The revision resulted from the fact that the total output of goods and services, the gross domestic product, was revised down as well to 4.1 percent, compared with an initial estimate of 4.5 percent economic growth in the first quarter.

With less output for the same amount of hours worked, the productivity figure was revised down slightly.

A key measurement of inflationary pressures was revised up slightly in Tuesday's report. Unit labor costs, the amount of compensation per unit of output, edged up 0.7 percent at an annual rate in the first quarter, compared with an original estimate of a 0.3 percent increase.

Even with the upward revision, an increase of just 0.7 percent in unit labor costs is considered a good sign that wage pressures are well contained, even though the nation's unemployment rate has returned to a 29-year low of just 4.2 percent.

The 0.7 percent rise in unit labor costs followed an actual decline of 0.4 percent in the fourth quarter last year. For all of 1998, unit labor costs were up 2 percent.

The 3.5 percent productivity increase for the first quarter represents a strong advance, better than the 2.2 percent gain for all of 1998. And even the 2.2 percent annual figure represented an improvement from weak productivity growth over the last two decades.

There is a huge debate in economic circles over whether improvements noted in productivity recently represent a fundamental change in the economy or is just a cyclical improvement that will not last.

Last month, Federal Reserve Chairman Alan Greenspan sided with the optimists. He argued that the recent solid advances in productivity did represent a significant change, representing the payoff for business investments in computers and other productivity-enhancing tools.

Greenspan called the combination of rapid growth, the lowest unemployment rates in nearly three decades and low inflation rates "truly phenomenal" but he warned that productivity advances will not be able to keep inflation forever at bay.