Productivity Falls at Annual Rate of 0.5% in Quarter

Non-farm business productivity fell at an annual rate of 0.5% in the second quarter as the nation’s output of goods and services declined for the first time since the end of the 1981-82 recession, the government reported Wednesday.

The decline in the foremost government gauge of workplace efficiency followed a whopping 4.3% productivity increase in the first three months of 1986, when automobile plants and other manufacturers built up large inventories.

The Bureau of Labor Statistics said that even though the number of hours worked increased at an annual rate of 0.2% in April through June, the output of non-farm businesses fell 0.3% from the first quarter.

The increase in hours worked was the smallest and the downturn in output was the first since the fourth quarter of 1982, when the economy began pulling out of the deepest recession since the Great Depression.

Preliminary Report

Using preliminary data, the bureau last month had calculated that non-farm business productivity rose at an annual rate of 1.7% in the second quarter.

But that was before the Commerce Department reported last week that the nation’s gross national product, the broadest measure of business growth, increased at an anemic annual rate of only 0.6% from April through June.

The earlier productivity estimate was based on preliminary figures in July from the Commerce Department, which said the GNP had climbed at an annual rate of 1.1% during the second quarter.

Economists were not surprised by the government’s new productivity figures in the wake of the revised GNP numbers.

“There was just too much inventory building in the first quarter, which is why productivity then was so strong,” said John Hagens of Chase Econometrics, a forecasting firm in Bala Cynwyd, Pa.

The downturn in the second quarter, Hagens said, reflects the fact that workers in factories were not laid off to the degree that output declined, as corporations worked off those huge inventories.

The revised Bureau of Labor Statistics figures showed hourly wage and benefit increases among non-farm workers averaging 2.2% annually, down from a 3.1% average annual increase in the first quarter and a 4% average raise for 1985.

Despite those increases, however, workers were still receiving less real compensation per hour in terms of purchasing power than they did in 1977, after adjustments for inflation, according to the Bureau of Labor Statistics numbers.

Productivity among manufacturers of durable goods--those expected to last three years or more, such as automobiles and appliances--fell 0.3% during the quarter, reflecting a 4.9% drop in output and a 4.6% decline in hours worked.

Last year, productivity among those workers increased 6.8%, and in the first quarter it rose at an annual rate of nearly 1%.

However, among manufacturers of non-durable goods such as textiles and petroleum products, productivity is still increasing dramatically, rising at an annual rate of 6.3% in the second quarter.

“Overall, manufacturing productivity is still doing pretty well,” said Cary Leahey, an economist for Shearson Lehman Bros., a New York investment house. “A lot of the . . . fat has been cut, and unit labor costs are still growing at only 2.5% to 3.5%, so we’re not losing the battle on the wage front.”

Hagens said the long-term trends still show an increase in manufacturing productivity for the first half of this year, but at a much slower rate than in 1985.

“The real point is that labor unions and workers in manufacturing are not raising their wage rates as much,” he said.