Lehi » The U.S. economy has bottomed out and should be poised to reap the rewards of a "productivity dividend" as it starts to grow again, IBM's chief economist told a Utah audience Wednesday.

The dividend, said Phillip Swan, is growth that can be expected from rising productivity, a measure of the output of goods or services per hour worked. Productivity has averaged 2.5 percent growth in recent years, helped by investment in technology and "working smarter" with existing systems, he said.

But for the April-June quarter, the Labor Department reported Wednesday that productivity surged at an annual rate of 6.6 percent.

"If we're able to sustain that kind of productivity gain, that means we can have an awful lot of upswing in the economy," Swan told a breakfast meeting of the Utah Technology Council, the trade group for computer-related and life science companies.

The Labor Department also said that labor costs fell at an annual rate of 5.9 percent -- the sharpest drop since 2000. Many economists said Wednesday that rising productivity and lower labor costs supported their view that the longest recession since World War II is coming to an end.

Mark Zandi of Moody's Economy.com told The Associated Press that it's "very typical" for productivity to surge at the end of a recession as businesses aggressively cut costs.

The effect could be that employers will be persuaded to slow their pace of layoffs and eventually resume hiring.

With a recovery in the offing, Swan said his biggest worry is the competition that could develop for a limited amount of money that is circulating in the economy. It will come from consumers looking to buy goods, businesses wanting to make investments and the federal government needing to finance its debt and pay down deficits.

"We'll be competing, and we know who will win if those funds are limited," he said. "The government can pay anything it has to. That's how you get to be government."

But Swan said he expects consumer spending to rise in the third quarter, given that Americans will have more disposable income because of tax-relief measures passed as part of the economic rescue package. Although Americans remain cautious because of a shaky job picture and the loss in value of such assets as homes and retirement savings, Swan is counting on them to fork over at least some of their disposable income.

"The money is out there," Swan said. "We know human nature. People will spend that money but we don't know how much."

Swan's generally upbeat forecast was reflected by others at the breakfast.

Richard Nelson, CEO of the Utah Technology Council, said informal surveys conducted at meetings since the beginning of the year showed the industry was holding its own or growing despite the economy.

"Two-thirds of our CEOs say they're growing from a revenue standpoint," he said.

Bill Harten, is CEO of UNIConnect of Sandy, a startup company that makes software to manage laboratory testing and research processes.

Harten said better marketing has improved sales and customers are starting to loosen up as the economy improves.

"We had a whole lot of business lined up in December and it all vaporized in January," he said. "We've seen that relaxing. Everybody held their breath. That's over."

tharvey@sltrib.com

The Associated Press contributed to this story.