Productivity of Workers Declines in 2nd Quarter : Labor: Despite the 2.5% drop, the biggest in four years, analysts expect output to rise as the recovery picks up steam.

The productivity of American workers fell at a 2.5% annual rate in the second quarter, the government said Tuesday, as the economy suddenly lost steam following a spurt of corporate hiring near the start of the year.

The April-through-June drop is the largest in four years and marks the first time that productivity has fallen in back-to-back quarters in two years, the U.S. Labor Department said. Workers’ output declined at a 1.6% rate in the first quarter.

Companies simply found themselves with too many employees and too little work, economists said.

“A lot of companies hired new people when confidence was high and the economy was showing some strength several months ago, but then business slowed down and productivity dropped as the year progressed,” said Lynn Reaser, senior economist at First Interstate Bank in Los Angeles.

Until this year, steady gains in productivity had been one of the bright spots in an otherwise lackluster economy. They indicated that American companies were operating more efficiently and were becoming increasingly competitive in overseas markets.

Still, Reaser and some other economists discounted the decline, saying the 2.6% growth in productivity in 1992 could not be sustained in 1993.

“Last year’s gains were unusually strong, so it’s no surprise that we saw some corrections in the first half of this year,” said Adrian Throop, senior economist at the Federal Reserve Bank of San Francisco.

Throop said productivity should rise again in the second half of 1993 as the economy gradually picks up steam.

Improvements in productivity help boost living standards by containing inflationary pressures.

But the drop in second-quarter productivity reported Tuesday could put upward pressure on inflation if it is followed by additional large declines later in the year.

While productivity fell, the number of hours worked grew by 4.3%. Economist Reaser said the increase reflects the new jobs that some employers added when the economy seemed poised for an upswing about the time President Clinton was elected.

“Those employers got surprised, because business slowed down and inventories started to build in the second quarter,” Reaser said.

That led to a decline in productivity, she said, because “you don’t run your assembly line at full speed when your warehouse is already full.”