Productivity Inches Up; Labor Costs Soar

U.S. workers’ productivity edged up at a tiny annual rate of 0.1% from October through December while unit labor costs, a major inflation measure for business, shot up 5.6%, the government reported today.

The 0.1% rise in non-farm business productivity, output per hour worked, continued a sawtooth pattern in effect for all of last year with a strong gain in one quarter followed by a poor showing in the next quarter.

Productivity had risen at an annual rate of 3.4% in the first quarter of 1988 only to fall at a rate of 2.4% in the second quarter. It then rose at a 2% rate in the July-September quarter only to slow to the minuscule 0.1% advance in the final three months of the year.

Of particular concern to economists were signs that tight labor markets and high factory operating rates are beginning to show up in inflationary pressures.

Unit labor costs, which reflect changes in hourly compensation as well as changes in productivity, rose at an annual rate of 5.6% in the fourth quarter, almost double the 3.7% rate of increase in the third quarter.

It was the biggest increase in unit labor costs since a 6.8% rise in the second quarter last year.

Federal Reserve Chairman Alan Greenspan cited the sharp escalation of unit labor costs as one factor behind the central bank’s recent anti-inflation moves. The Fed is hoping that by pushing up interest rates it will dampen demand enough to cool an overheated economy and prevent an inflationary wage-price spiral from taking hold.