Productivity Drops 1% in First Quarter : Economy: Output of American workers posts biggest decline in a year. At the same time, hourly labor costs went up 3.9%.

American workers’ productivity dropped by an annual rate of 1% during the first quarter of 1990, the worst showing in a year, the government reported today.

The Labor Department said the 1% decline in non-farm productivity--defined as output per hour of work--was the biggest drop since productivity fell by an annual rate of 1.3% for the January-March period last year.

During all of last year, productivity rose just 0.9%, the worst performance since the 1981-82 recession.

While the report showed an overall decline in non-farm productivity, workers in the manufacturing sector registered a seasonally adjusted 4.1% increase so far this year.

Meanwhile, today’s report showed that hourly labor costs--a major inflation measure for businesses--rose at an annual rate of 3.9% in the first quarter of 1990, compared with a 4.9% increase for the first quarter of 1989.

Unit labor costs, another key determinant of future price inflation, rose 4.9% so far this year, the report said, compared with a 4.5% increase during all of 1989.

Allen Sinai, chief economist at the Boston Co., called the 3.9% increase in hourly labor costs “a bright spot,” noting those costs increased by 5.5% for all of 1989.

But the first quarter’s 4.9% rise in unit labor costs--which factors in other costs to employers besides wages--is worrisome, Sinai said.

“It suggests a rock-hard underlying inflation rate of 4.5% to 5%. It’s not likely to get much better anytime soon without the economy getting more productivity,” Sinai said.

Although calling the plunge in the productivity rate “extremely disappointing,” he said it is not unusual for an economy using most of its workers, plants and equipment.

The nation’s unemployment rate was 5.4% in April, relatively close to the 5.0% jobless rate many economists consider full employment.

Low unemployment holds back productivity because “companies are tapping the bottom of the barrel in terms of qualified workers,” Sinai said.

The report was expected to revive the debate over America’s lagging productivity.

Since 1982, productivity growth has averaged 1.8% a year. While a slight improvement over the 1.2% average growth rate in the 1970s, it was still far below the 3.3% rate of increase posted in the two decades following World War II. American workers enjoyed healthy wage gains and a rising standard of living during those decades.

Increasing productivity is considered basic to boosting living standards because it allows businesses to pay workers more as their output rises without risking higher inflation.

Output in the non-farm sector rose 2.7% during the first quarter of 1989, well below the 3.6% increase in the number of hours worked, the Labor Department said.