Productivity Upturn Belies Trend : Long-Term Growth Weak; Factory Orders Slump 1.9%

The nation’s productivity rose by an annual rate of 1.3% from July through September, the government said Wednesday, reversing a second-quarter decline when new employment had outpaced increases in goods and services.

But analysts cautioned that the long-term trend of anemic productivity growth offers little hope for lifting Americans’ standard of living or increasing U.S. competitiveness overseas.

In another report Wednesday, orders to U.S. factories for manufactured goods fell 1.9% in September, reflecting a big decline in demand for jet aircraft, according to the Commerce Department. The department said orders for durable and non-durable goods fell to $222.6 billion in September, $4.4 billion below the August level.

Output of goods and services by non-farm businesses rose at an annual rate of 2.8% in the third quarter while the number of hours worked increased only 1.5%, the Labor Department said.

But the over-the-year productivity improvement has been only 0.8%, the government said. Revised figures showed that productivity dropped 2.4% in the second quarter--much worse than the 1.4% decline estimated previously.

“Despite the strong growth of the economy over the past year, there’s still no significant change in the weak trend in productivity that we’ve seen since 1973,” said Larry Chimerine, chairman of WEFA Group, a Bala-Cynwyd, Pa., economic consulting firm.

“Productivity growth averaging 1% a year remains this country’s major economic problem,” he said. “Until we get it on a stronger upward trend, we’re not going to see any increase in real wages or in our international competitiveness.”

Unit labor costs rose at an annual rate of 4% in the second quarter on hourly wage and benefit increases averaging 5.4% annually. Last year, businesses were able to restrain their labor cost increases to only 3.1%, with a 3.8% increase in hourly compensation to workers.

Roger Brinner, an economist for Data Resources Inc. of Lexington, Mass., said Americans can expect to see a pattern in the near future in which productivity gains offset only a small portion of recent increases in wages.

“It confirms that our core inflation rate has moved up, locked in at 4% and probably is headed to 5% unless OPEC (the Organization of Petroleum Exporting Countries) dissolves,” Brinner said.

Manufacturers, which account for one-fourth of the nation’s economic output, continue to fare much better than businesses generally in both improving their productivity and in keeping a lid on labor costs.