And the productivity drop was not what economists wanted to see. The ability of companies to boost worker productivity by using computers and other technology to squeeze more output from every hour worked has been crucial fuel to the 10-year economic expansion. But the productivity slump was not entirely unexpected. Productivity typically weakens when the economy does, as companies' output falls faster than they can lay off workers. Simply put, that means the same or only slightly fewer workers produce much less goods.
Analysts generally agree.
Nor is there much fear that rising labor costs will spark inflation. Wage pressures will likely slacken as the economy slows and layoffs continue. And the slowing economy will make it tough for companies to raise prices. The slumping economy has badly wounded one of Federal Reserve Chairman Alan Greenspan's favorite economic indicators, forcing at least a temporary halt in the nation's dazzling productivity boom. On their face, the numbers are ugly.