WASHINGTON — Productivity, a crucial ingredient in the economy's long-term vitality, turned in its best performance in almost two decades during the first quarter of the year as hard-pressed companies produced more with fewer workers.

        Productivity — the amount of output per hour of work — soared at an annual rate of 8.4 percent in the January-March quarter, after a strong 5.5 percent growth rate in the previous quarter, the Labor Department reported Friday.

        The latest figures show that last year's recession didn't derail healthy productivity gains seen since the late 1990s and bodes well for keeping the nation's economic recovery on solid footing, economists said.

        In another encouraging report for the recovery, orders to U.S. factories rose 1.2 percent in April, the biggest gain in six months, the Commerce Department said. That reflected stronger demand for a wide variety of goods, including cars, household appliances and machinery.

CINCINNATI LOSING STEAM

Greater Cincinnati's three-month economic expansion is losing some steam, according to the National Association of Purchasing Management-Cincinnati.     Increases in production were unable to offset increases in new orders, backlog of orders and dollars spent by purchasing managers, the group's Greater Cincinnati Report on Business for May said. Prices remained relatively flat, it said.     The report said that because the numbers are volatile, purchasing managers “should continue to plan for an expanding economy but in a more conservative manner.”     The national purchasing managers report is expected to be released Monday.

        “This is all positive news. It should give skeptics some evidence that the economic recovery in the United States is in fact going to have staying power,” said Lynn Reaser, chief economist at Banc of America Capital Management.

        The 8.4 percent rise in productivity in the first quarter marked the biggest increase since the second quarter of 1983 and matched many analysts' expectations.

        Economists predicted that the new reading on first-quarter productivity would be slightly lower than the 8.6 percent rate initially estimated because the economy grew a little less briskly during the period than previously thought.

        The impressive productivity gain came at a price. Businesses, responding to the lingering effects of last year's recession, cut back on their payrolls in the first quarter. That caused the total number of hours worked to fall at a rate of 2.1 percent. Output rose at 6.1 percent.

        “As far as downsides go, this is roughly the equivalent of eating your broccoli. It may be tough to stomach at first, but it makes you stronger and healthier in the long run,” Mark Vitner, economist at Wachovia Securities, said.

        In the long run, productivity gains are good for workers, for the economy and for companies.

        Gains in productivity allow companies to pay workers more without raising prices, which would eat up those wage gains. Productivity gains also permit the economy to grow faster without triggering price inflation. If productivity falters, however, pressure for higher wages could force companies to raise prices and thus worsen inflation.

        For all of 2001, productivity grew by 1.9 percent, a slowdown from the 3.3 percent gain posted in 2000 but still a respectable showing given the slump.

        Federal Reserve Chairman Alan Greenspan has said he remains bullish about the long-term prospects of productivity growth.

        With strong growth keeping a lid on inflation, economists said the Federal Reserve has the luxury of leaving short-term interest rates unchanged at 40-year lows through the summer.

Companies may lose tax breaks
Developer Ackermann bucks trend
Productivity booms in wake of recession
Wendy's buys Baja Fresh for $275M
Calcium deposits Coke in court, courtesy of P&G
Enroner: Firing was a surprise
Investors turning to gold during tense times
Nasdaq dumps Adelphia; now it must pay for bonds
Thinking marriage? First, talk finances
What's next - Phone Tag?
Rate report
Business Digest
Tristate Summary
What's the Buzz?