U.S. Worker Productivity Rises at 1.6% Annual Rate

The productivity of American workers rose at the fastest rate in two years in the July-September quarter, climbing at an annual rate of 1.6%, the government said today.

However, the rebound is still well below the level needed to significantly boost Americans’ standard of living, according to most economists.

Hourly compensation during the period rose 4.5%, but, with inflation removed, it actually declined 1.8%.

Increased productivity--getting each worker to produce more during each hour of work--is vital to increasing the nation’s standard of living without inflation.

Productivity is also closely watched by business and government because it is a reflection of how well the United States is able to compete with its trading partners overseas.

The 1.6% third-quarter gain in non-farm productivity reported by the Labor Department was a marked improvement over the 0.3% advance in the second quarter, revised from an earlier estimate, which showed a 1.5% gain.

It was also the biggest advance since productivity shot up at a 2.8% annual rate in the third quarter of 1988.

However, because productivity plunged at a 1.3% rate in the first quarter, it is averaging only a scant 0.2% advance for the first nine months of 1990.

Still, that is better than the 0.7% decline for all of 1989. Since 1982, productivity growth has averaged about 1.4% a year--better than the 1.2% average in the 1970s but far worse than the 3.3% annual gain posted in the two decades after World War II.

During the July-September period, the number of hours worked edged down 0.1%, the first decline in more than four years. Economists say this is a sign that employers are preparing for a recession by not hiring new workers or allowing existing employees to work more hours.

Manufacturing productivity continued to outpace that of overall business, rising 5.6%.

Meanwhile, unit labor costs, a key gauge of future price inflation, rose 2.8% in the third quarter compared to 4.7% in the second quarter. For the year, unit labor costs averaged a 4.3% gain compared to 3.9% in 1989.

Productivity Non-farm business productivity, percent change from previous quarter at annual rate, seasonally adjusted. 3rd. qtr. 1990: Preliminary +1.6%