THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, August 15, 1996 TAG: 9608150358
SECTION: BUSINESS PAGE: D6 EDITION: FINAL
SOURCE: BY JOHN D. MCCLAIN, ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: 70 lines
Workplace productivity slipped 0.1 percent in the April-June quarter, but it had little immediate effect on inflation, the government said Wednesday.
Although the dip in efficiency boosted labor costs, economist Gordon Richards of the National Association of Manufacturers said businesses apparently absorbed the increases.
``For this reason, inflation should not rise, and productivity should pick up again in the third quarter, as hours increase more slowly,'' he said.
Indeed, economist Marilyn Schaja of Donaldson, Lufkin & Jenrette Securities Corp. said recent data already point to increased productivity and slower labor-cost growth in the current quarter.
The financial markets paid little attention to the report, as stocks managed slim gains Wednesday in extremely quiet trading. On Tuesday, they had fallen on news of potentially inflationary signals: Consumer prices and retail sales rose more than expected in July.
Investors fear that signs of a robust economy could cause the Federal Reserve to raise short-term interest rates to head off higher inflation.
The Labor Department report showed that nonfarm productivity eased because job growth boosted the number of hours worked. Productivity measures output per hours worked.
Output rose 4.2 percent from April through June, much faster than the 2.7 percent gain from January through March.
But hours worked also surged, up 4.3 percent, more than four times the 1 percent advance during the previous three months.
That resulted in a 3.8 percent jump in unit labor costs, more than twice the 1.5 percent increase in the first quarter. Unit labor costs are typically two-thirds of what consumers pay for a product.
In a separate report, the Commerce Department said business inventories increased a tiny 0.1 percent in June - a sign, analysts said, that companies were keeping their stockpiles lean and avoiding the large buildup that occurred in 1995.
The slight increase also occurred as sales slipped 0.5 percent, the first decline in five months.
The Labor Department said a measurement of inflation in its productivity report rose just 2.2 percent despite the dip in efficiency. Worker compensation actually fell 0.1 percent, when adjusted for inflation, after remaining unchanged during the first quarter.
The figures are adjusted for seasonal variations.
Productivity is a key to Americans' standard of living since greater efficiency means businesses can increase wages without raising prices because workers are producing more with the same amount of work.
But some analysts fear that the current tight labor market could lead to increased wages that, without sufficient gains in productivity, would be passed on to consumers as higher prices.
Federal Reserve policy-makers will study the productivity report with other recent data next Tuesday when they consider whether to raise short-term interest rates.
Most analysts expect them to hold rates steady for now.
Based partly on second-quarter employment reports, many analysts had expected a larger 0.5 percent decline in productivity. It had increased 1.8 percent in the first three months after falling 1.1 percent three months earlier.
Productivity rose 0.7 percent for all of 1995, up from 0.5 percent in 1994. But the gain last year was less than one-third the productivity growth rate of the 1950s and 1960s.
Manufacturing productivity slowed during the April-June quarter. It rose just 1.5 percent, compared with a 5.6 percent jump three months earlier for the smallest increase since the second quarter of 1993.
Total business productivity, including farming, edged up 0.5 percent after increasing 2 percent earlier in the year.
KEYWORDS: INFLATION ECONOMY PRODUCTIVITY by CNB