THE ECONOMY : Productivity Slips as Cost of Labor Rises

The productivity of American workers slipped in the first quarter while unit labor costs shot up more than 6% on an annual basis, the government said Thursday in a report analysts cited as proof of both a slowing economy and stubborn inflation.

The Labor Department’s revised figures for the first three months of the year showed a 1.1% decline on an annual rate in non-farm business productivity, rather than the 0.5% gain projected in preliminary first-quarter data issued last month.

Unit labor costs--a key determinant of overall inflation--rose a revised 6.6% on an annual basis in the quarter, said the government, which in the earlier report had pegged the increase at 5.2%.

The report was in line with other data indicating a significant slowing of economic expansion in the first quarter, followed by somewhat improved growth in the first two months of the second quarter. Analysts expect the unemployment report for May, due today, to put a more definitive stamp on second-quarter trends.

More Hours Worked

“The economy is slowing down, but it’s certainly not stopping,” David Wyss, chief economist of DRI-McGraw-Hill of Lexington, Mass., said.

The 1.1% decline in productivity followed an annualized 1% gain in the fourth quarter of 1988 and an overall gain of 1.5% for that year. It was the first decline in productivity since a sharp drop of 2.4% on an annual basis in the second quarter of last year. The revised data showed the 1.1% drop resulted from a 2.2% larger output being produced via 3.4% more hours of work.

The jump in unit labor costs was the biggest since the second quarter of last year as well; the government at that time reported a 6.8% increase on an annual basis. For all of 1988, unit labor costs rose 3.1%.

The revised numbers were not entirely unexpected.

Last week’s downward revision of the gross national product for the first quarter brought predictions that the productivity gain reported in May’s preliminary data was erroneous.

Still, the rate of decline surprised some analysts. Of greater concern was the inflationary pressure demonstrated by the big jump in labor costs.

“The results are distinctly inflationary,” said Allen Sinai, chief economist for Boston Co. Economic Advisers. “The true core of inflation in the United States is really unit labor costs. . . . This is indeed a dismal statement and makes the outlook for a quick and accelerated reduction in inflation very, very poor.”