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U.S. Productivity Growth Slows

According to a report by The Conference Board, the U.S. productivity growth rate has slowed slightly, while the rate for emerging markets in eastern Europe and Asia have surged.

The times of extraordinarily high U.S. labor productivity growth rates are over, at least for now, according to a report released today by The Conference Board, an independent membership organization that conducts management and marketplace research. Meanwhile, the same report cited a productivity surge in eastern Europe, India and China.

Though still healthy compared with many other developed nations, the productivity growth rate slumped to 1.8 percent in 2005 in the U.S., down from 3 percent in 2004, the report says.

"The U.S. performance is still good compared to Europe," says Bart van Ark, director of The Conference Board's international economic research program and co-author of the report with The Conference Board economists Catherine Guillemineau and Robert McGuckin. "What is striking in these new numbers is the sustained productivity acceleration in the emerging markets of central and eastern Europe and Asia. In fact, economies such as China and Poland are accelerating to around 8 percent."

According to The Conference Board, most countries in the North America, Europe and developed Asia experienced a slowdown in productivity growth rates in 2005. Countries at the higher end of the global productivity spectrum are mainly emerging markets. China is the productivity leader in Asia, with productivity growth of 8.7 percent per year on average since 2000.

Meanwhile, the report indicates that productivity and labor input growth in western Europe continued to be disappointing among the pre-2004 membership of the European Union. Following a slight recovery of productivity growth in 2004 to 1.4 percent, productivity slowed to 0.5 percent in 2005. At the lower end of the productivity spectrum are European nations, notably Italy and Spain, bringing the average of the EU-15 down to 0.5 percent.

The report also indicated that the U.S. and the EU stand at two different points in their business cycle. As U.S. gross domestic product (GDP) growth slows, U.S. productivity growth is likely to slow again compared to 2005. While productivity slowed, U.S. labor input growth, measured in total working hours, accelerated from 1.2 percent in 2004 to 1.8 percent in 2005, partly offsetting productivity as a contributor to GDP growth. "These are normal cyclical changes," says van Ark. "After three years of exceptional productivity growth, U.S. companies have finally started to add workers. Overall, this is a very balanced performance."