Productivity Rises 2%, Slowing but Still Strong : Economy: Workers’ wages outpace inflation in third quarter, but installment debt drops.

American employers kept getting more efficient during the summer and early fall, but their rate of productivity growth--a key barometer of economic performance--cooled off from the red-hot pace of earlier this year, the federal government reported Tuesday.

The day’s other economic news, however, provided mixed signals for the American public: Workers’ hourly wages outpaced inflation during the third quarter, but consumers took on less installment debt, indicating they may be reaching their spending limits.

Productivity in the non-farm portion of the economy grew at an annual rate of 2% during the third quarter--a relatively strong showing but also a sign that the widespread cost cutbacks in American industry may be losing some of their punch. In the second quarter, productivity climbed a revised 4.9%, the biggest jump in more than nine years.

In the most recent quarter, most of the productivity growth came in manufacturing, which registered a 6.2% gain.

Productivity, a measure of the per-hour output of all employees, is closely watched by economists because it helps determine the competitiveness of a nation’s products in foreign markets and its overall standard of living.

Although productivity growth may taper off further in coming months due to a general slowdown in the economy, significant improvement should continue for the foreseeable future, said Donald H. Straszheim, chief economist of Merrill Lynch & Co.

He based his outlook on “the extraordinary cost-cutting, investment and other efficiency-creating steps that employers have taken in the last few years.”

“Those steps,” Straszheim added, “are what productivity is all about.”

However, other analysts countered that the benefits of the cost cutbacks may be diminishing. One explanation: The performance of workers that survive layoffs often suffers as they become overburdened with extra responsibilities.

Also, some analysts said, a shortage of workers with the technical skills needed by many employers may begin to curb productivity gains, particularly given the nation’s low unemployment rate.

“Where are your marginal workers coming from?” asked Robert A. Brusca, chief economist at Nikko Securities in New York. “High-tech products require a high-tech work force.”

The demand for skilled workers, however, may be leading to modest pay increases. Tuesday’s productivity report showed that hourly wages, after inflation is taken into account, climbed 1% in the third quarter, compared to a revised 0.3% in the second quarter.

Separately, the Federal Reserve Board reported that U.S. consumers in September took on less credit card, auto loan and other types of installment debt. Consumer installment credit rose $5.42 billion in September, the smallest increase since February, when the level of credit rose $4.7 billion.

Some analysts expressed concern that the report could presage a weak Christmas shopping season. Others countered that periods of low unemployment normally bring brisk consumer spending.

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Productivity

Non-farm business productivity, percent change from previous quarter at annual rate, seasonally adjusted:

Third quarter 1995: 2%

Source: Labor Department