Originally created 11/14/97

Productivity rate up sharply



WASHINGTON -- Productivity at U.S. workplaces unexpectedly grew in the third quarter at the fastest pace in five years, easing fears that labor shortages could lead to renewed inflation.

Productivity -- the key to Americans' living standards -- surged at an annual rate of 4.5 percent from July through September, helping to push unit labor costs down 0.3 percent, the Labor Department said Thursday.

The growth in nonfarm productivity -- output per number of hours worked -- was the fastest since a 5.9 percent jump during the final three months of 1992. Many analysts were looking for a growth rate of just 3 percent.

Productivity is considered the key to Americans' standard of living since greater efficiency means businesses can increase wages without raising prices as workers produce more with the same amount of work.

"Such high productivity growth implies downward pressure on inflation," said Jerry Jasinowski, president of the National Association of Manufacturers. "Unit labor costs declined, which means that the recent pickup in wages should be of little concern because productivity gains will offset them."

The drop in labor costs -- typically two-thirds of the price of a product -- was the first since April-June 1994.

The department also reported Thursday that first-time claims for jobless benefits fell last week by 6,000 to 310,000. It was the 10th straight week that claims remained below 320,000, suggesting continued tight labor markets.

In congressional testimony Thursday, Federal Reserve Chairman Alan Greenspan and Deputy Treasury Secretary Lawrence Summers minimized the effect of the Southeast Asian financial crisis on the U.S. economy and maintained it was not a threat to prosperity.

Many analysts were astonished at the steep productivity gain.

Mark Vitner, economist at First Union Corp. in Charlotte, N.C., said the steep productivity gain was "simply unheard of this late into a business expansion."

Huge investments in computers and other high-tech equipment have put the economy on the threshold of what Federal Reserve Chairman Alan Greenspan has said would be a "once or twice in a century" leap in productivity.

Others, however, contend much of the price containment is due to temporary factors, such as a strong dollar that holds down the cost of imported goods and depressed benefit costs from the switch to managed health-care plans.

The lack of any appreciable price increases has permitted the Fed to keep interest rates steady for the last seven months -- a stance officials continued during a policy-making meeting on Wednesday.

The third-quarter productivity report followed a 2.4 percent growth rate in the three previous months. Those performances contrasted with growth that averaged only about 1 percent a year since the early 1970s, after robust advances in excess of 3 percent annually in the 1960s. It rose just 1.3 percent last year.

Output increased at a 4.3 percent rate, up from 3.8 percent during the April-June quarter. The number of hours worked, on the other hand, fell 0.1 percent, compared with a 1.4 percent gain three months earlier.

The overall productivity increase was led by a 9.8 percent jump in the manufacturing sector, largest since a 12.5 percent gain in the second quarter of 1982.

Total business productivity, including farming, was up at a 4.4 percent rate, also the largest since the fourth quarter of 1994.