Climb Follows Sharp Drop at End of Year : Productivity Higher in First Quarter

Productivity, the efficiency with which the nation produces goods and services, climbed again during the first quarter of 1986 following a sharp drop at the end of last year, the government said Monday.

The turnaround reflected a general economic rebound, coupled with lower labor costs.

Non-farm business productivity in January, February and March rose at an annual rate of 3.4%, the Bureau of Labor Statistics said, compared to a 3.1% drop in the last quarter of 1985.

The output of goods and services jumped 4%--the largest rise in two years--while the number of hours worked was rising only 0.6% and hourly labor costs were rising at an annual rate of only 2.4%, the bureau said.

Reflecting lower wage gains by workers so far this year, preliminary figures show unit labor costs actually declining 1% in the first quarter, compared to a 3.9% increase for all of 1985.

However, the bureau said that the bulk of the productivity gains occurred in the rapidly growing service areas of the economy and that manufacturing, while its labor costs are down, is still sluggish.

Productivity in manufacturing, which accounts for about one-fourth of the nation’s economic activity, and output both were up 2.4% from the last quarter of 1985.

Per-unit labor costs in manufacturing fell 1.4%.

While hourly compensation for factory workers nominally rose at an annual rate of 0.9% in January, February and March, their real wages, after accounting for inflation, fell 0.5%.

“Labor costs are not a problem,” said Jerry Jasinowski, chief economist for the National Assn. of Manufacturers. “We have a strange situation where costs are improving and firms are more efficient. But industrial output remains down because of continued trade competition.”

The Commerce Department reported last week that the gross national product, the broadest measure of the economy’s health, grew at an annual rate of 3.2% in the first quarter of 1986, its best performance in a year.

Much of the growth was attributed to a large decrease in the trade deficit, primarily from lower oil prices.

“It’s not clear that trend is sustainable,” Jasinowski said. “The trade figures look more favorable than they are. Industrial output is still down a significant degree due to auto imports.”

Allen Sinai, chief economist for Shearson Lehman Bros., a New York investment house, said the relatively poor productivity showing in manufacturing, compared to the rest of the economy, was likely due to sharp declines in oil and domestic automobile production last month.

However, he said, the lower oil prices should produce large gains in productivity later this year, perhaps as much as 4% in manufacturing.

“The sluggish performance of the 1970s was, to a large extent, due to big increases in oil prices and consequent disruptions to production,” Sinai said. “Now we have the reverse of that moving into play, removing those energy restraints on production.”

Including the farm sector of the economy, the Bureau of Labor Statistics said, productivity increased only 2.3% in January, February and March. Officials said that lower figure reflects a 27% decline in farm productivity during the quarter.

But they cautioned that measuring farm productivity is much more difficult since output, in terms of harvests, often doesn’t directly reflect the hours that went into achieving it--for example, planting seeds months earlier.