Workers’ Productivity Slows in 2nd Quarter

Growth in American workers’ productivity, the key to rising living standards, slowed in the April through June quarter, posting the smallest gain in nearly two years, the government said Thursday.

Separately, the nation’s chain stores reported weak sales for August, blaming the decline mostly on a late Labor Day holiday. But signs of slowing consumer spending also contributed.

Government reports released Thursday on new-home completions during July and jobless claims for the latest week showed the U.S. economy was still relatively vigorous at the beginning of the third quarter, in contrast to much of the rest of the world.

But the gradual slowing in U.S. economic activity seen in fading sales of manufactured goods to distressed Asian nations spread to service businesses in August, the National Assn. of Purchasing Management said.

Productivity of nonfarm, nonsupervisory workers--measured as output per hour of work--rose at an annual rate of 0.1%, the Labor Department said.

That’s better than advance figures, released last month, that estimated productivity had fallen 0.2% in the second quarter. But it’s still the worst showing since the third quarter of 1996, when productivity was unchanged.

The second-quarter weakness followed a healthy 3.5% increase in productivity in the first quarter.

Unit labor costs, a key measure of inflation pressure, rose 3.9%, revised downward from the originally reported 4.1% gain but still far above the 1.1% gain recorded in the first quarter.

Workers’ productivity largely determines whether living standards improve. Gains in productivity allow businesses to operate more efficiently, enabling them to boost workers’ pay without raising their overall costs or hurting profits.

Healthy productivity gains have been cited as key to the nation’s prosperity in the last two years. After a slump, when productivity grew at only about a 1% annual rate from 1974 to 1995, it picked up to a 2.4% rate in 1996.

Retailers hardest hit by weak sales in August were those who depend on clothes and accessories for back-to-school sales such as Federated Department Stores Inc., Sears, Roebuck & Co. and May Department Stores Co.

Faring better were discount retailers, which continue to entice shoppers with their low prices and wide selection. Wal-Mart Stores Inc. had another stellar month, and sales also were strong at Dayton Hudson’s Target discount stores.

The other reports showed:

* First-time applications for unemployment benefits edged up only slightly last week, by 1,000 to a seasonally adjusted 302,000, the Labor Department said. The four-week moving average of claims, which economists consider even more telling, fell to 302,250--its lowest level in a year.

* Home builders, scrambling to meet demand, completed new homes at the fastest rate in nearly 1 1/2 years during July, the Commerce Department said. New homes were being made ready for sale and occupancy at a rate of 1.53 million a year, up 3.5% from June, for the fastest annual rate since 1.57 million in February 1997.

* The NAPM’s index of growth in the nation’s non-manufacturing sector showed a slower rate of growth for a third straight month in August. The gauge fell to 52 from 57.5 in July, mirroring the performance of manufacturers, who reported Tuesday that their business had weakened for a third consecutive month in August.

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Business Productivity

Percentage change from previous quarter at annual rate, seasonally adjusted: 2nd quarter 1998: +0.1%

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Source: Labor Department