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Productivity up 2.9% in quarter

Increase is slowest since late in 2002

WASHINGTON -- The productivity of American workers rose at an annual rate of 2.9 percent in the spring, the slowest increase since late 2002, the government reported yesterday.

The Labor Department said the increase in productivity, the output of workers for each hour worked, in the April-June quarter, followed a 3.7 percent rate of increase in the first quarter.

The 2.9 percent increase was the smallest gain since productivity rose at an annual rate of 1.6 percent in the fourth quarter of 2002. Analysts had been predicting an even bigger drop-off in productivity in the second quarter, to around 2.3 percent, reflecting that the economy slowed sharply in the second quarter.

Unit labor costs, which are being closely watched by the Federal Reserve for signs of inflationary pressures, were up at an annual rate of 1.9 percent in the second quarter, the biggest rise in two years, following a 0.3 percent advance in the first quarter.

Many analysts noted that even though unit labor costs accelerated in the second quarter, the rise for the past 12 months was still a tiny 0.2 percent, indicating that wage pressures remained almost nonexistent.

"The fact that unit labor costs remained well-contained suggests that the inflation outlook will remain benign," said Merrill Lynch economist Ron Wexler.

On Wall Street, the Dow Jones industrial average gained 130.01 points to close at 9,944.67.

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