Special Reports

Milestones redux

The Nasdaq composite index crossed 2,000 for the first time in nearly two years Wednesday and the Dow Jones industrials approached 10,000 following a report that the productivity of America's workers soared by the largest amount in 20 years. The news raised hopes that the economic resurgence is taking hold and businesses will soon step up hiring of new employees alongside those operating at a rapid pace. "Folks are really starting to believe in the sustainability of the economic recovery," said Richard J. Nash, chief market strategist at Victory Capital Management. The Nasdaq's return to 2,000 - it hit 2,000.92 before falling back to close at 1,960.25, down 19.82 - was a significant step in the stock market's recovery from the heavy losses that followed the dot-com bust, recession and corporate ethics scandals of recent years. But the index still remains well below its record close of 5,048.62, reached March 10, 2000. The Dow closed up 19.78 at 9,873.42. Wednesday's gains followed a Labor Department report that productivity - the amount an employee produces per hour of work - rocketed at an annual rate of 9.4 percent in the July-to-September quarter, the best showing since the second quarter of 1983. "The gains in productivity are helping companies' bottom lines so they can be less focused on cutting costs and more focused on expanding business and ultimately hiring more employees," said Lynn Reaser, chief economist at Bank of America Capital Management. "This is very good news for the sustainability of the recovery." For the economy's long-term health and for rising living standards, productivity gains are vital. They allow the economy to grow faster without triggering inflation. Companies can pay workers more without raising prices, which would eat up those wage gains. And productivity can bolster a company's profitability. That's particularly important in the current economic climate. As profits improve, companies may be more willing to boost capital investment and hiring - two crucial ingredients for a lasting recovery. The economy is estimated to be growing at a solid 4 percent rate in the current quarter. That's slower than the blistering 8.2 percent pace of the third quarter - the fastest in nearly two decades - but analysts said it is enough to spur hiring. During the economic slump, gains in productivity came at workers' expense: Firms produced more with fewer employees. But in the third quarter, businesses pumped out more with a small increase in workers. The economy added a net 103,000 jobs during the quarter. Companies' output in the third quarter surged at a 10.3 percent rate, the biggest increase since the third quarter of 1983, and more than twice the 4.6 percent pace in the second quarter. Businesses may be running out of ways to squeeze more out of workers to meet customers' demands for goods and services, said Richard Yamarone, economist with Argus Research Corp. "Stronger job creation may be just around the corner," he said.