Productivity Rises 1.6% in 3rd Period; Hours Worked Fall

In a sign that worried companies are resorting to tough cost-cutting measures, U.S. worker productivity rose 1.6% in the July-August period, the Labor Department reported Tuesday.

The productivity gain underscores the intense pressure faced by many companies to stay profitable as business conditions have deteriorated this year. While the advance was the sharpest in two years, it also reflected the nation’s overall economic weakness.

“We’re seeing the effects of companies laying off workers and still managing to achieve increases in (work) output,” said Lynn Reaser, a vice president and senior economist at First Interstate Bancorp in Los Angeles. “But I don’t think it’s a sustainable trend.”

The gain in productivity--rising output per hour of work--occurred at a time when hours worked declined by 0.1%, the first decline in more than four years. Manufacturing productivity continued to outpace that of overall business, rising 5.6%.

Hourly compensation also rose 4.5%--but actually dropped by 1.8% when adjusted for inflation, according to the report, a statistic that suggests wage pressures were not contributing to inflation in recent months. At the same time, Reaser noted, the data suggest that many workers were not able to keep up with the cost of living.

The strongest productivity gains were made by some of the most embattled industries--manufacturers of durable goods such as appliances, furniture and other long-lasting products. Productivity jumped 7.3% for that sector.

“We produced more in America with fewer people,” observed Joseph A. Wahed, chief economist at Wells Fargo Bank in San Francisco, adding that “massive layoffs in construction and manufacturing” influenced the statistics.

Besides layoffs, employers also have pared their costs by imposing hiring freezes and reductions in overtime.

Since January, U.S. manufacturing payrolls have fallen by 580,000 workers, the Labor Department reports. The labor force that remains is “working fewer hours but working harder,” Wahed said.

Since 1982, productivity growth has averaged 1.6% a year--somewhat higher than the performance of the 1970s, but far worse than the 2.5% annual gain posted in the decades after World War II. Such gains pave the way for advances in living standards without inflation.

As a result, productivity is a key to the nation’s economic competitiveness and is closely watched by business and government.

The recent advances in efficiency--while helping corporate bottom lines for now--will be hard to continue in the future, because companies may run out of obvious places to trim costs.

“At a certain point you run into diminishing returns,” Reaser said. “I imagine we are nearing that point.”

Productivity Non-farm business productivity, percent change from previous quarter at annual rate, seasonally adjusted. Third quarter, 1990: +1.6% (preliminary) Source: Labor Department