Worker Productivity Posts 2nd Strong Year

U.S. worker productivity for 1997 was little changed from the year before, producing the best back-to-back yearly showings in more than a decade as companies benefited from a booming economy and a surge in business investment.

Nonfarm productivity--a measure of the time and effort of providing goods and services--rose 1.7% for all of last year, almost matching the 1.9% increase for 1996 and the best two-year gain since 1985-86, government figures showed.

For the fourth quarter alone, productivity rose at an annual rate of 1.6%, the Labor Department said, down from an earlier estimate of a 2% increase and less than the third quarter’s 3.6% gain. The revision stemmed from a reduced estimate for overall growth during the period.

“This is one bad quarter in the context of [a] good year,” said Cary Leahey, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, N.Y. “Productivity is still pretty good, and well above the 10-year average of about 1%.”

The revision to the fourth quarter’s productivity gain had the effect of pushing up unit labor costs--a measure of wages and benefits tied to productivity--in the period. Unit labor costs rose 3.5% in the fourth quarter, up from the initial estimate of a 3% increase, and the largest increase since the third quarter of 1996.

Still, analysts said that doesn’t mean investors should be concerned about accelerating inflation, because the numbers over the last several quarters show employment costs haven’t risen by much. For all of last year, unit labor costs rose 2.1%. That’s close to the 1.9% gain a year earlier and below the 2.4% increase in 1995.

“Productivity growth is doing the job in keeping wage pressure in check,” said Jonathan Basile, economist at HSBC Securities Inc. in New York.

In a separate report Tuesday, the Federal Reserve Bank of Richmond, Va., said manufacturing picked up in several mid-Atlantic states in February from the previous month, as prices rose at a slower pace.

The Richmond Fed said in its monthly survey of mid-Atlantic manufacturers that factory orders rose at a slower pace last month than in January, while shipments rose at a faster rate.

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Business Productivity

Percentage change from previous quarter, annualized rate, seasonally adjusted:

4th-quarter 1997: +1.6%

Source: Labor Department