Productivity Surged in Fourth Quarter; 6.6 Pct. Increase Signals Economy Can Grow Without Inflation
The productivity of nonfarm businesses surged so strongly in the final three months of last year that the cost of labor in the average item produced went down for the second quarter in a row, the Labor Department reported yesterday.</br></br>The striking gains in labor efficiency offset a poorer performance in the first half of 1993 and left unit labor costs only 1.3 percent higher than they were a year earlier. Such a small rise in payrolls, which are most employers' single biggest cost, means inflation might fall further, or at least not worsen, analysts said.</br></br>The department said that output of goods and services at businesses other than farms rose at an annual rate of 6.6 percent in the fourth quarter of last year while the number of hours worked went up at only a 2.3 percent rate. That combination meant that productivity - output per hour worked - rose at a 4.2 percent rate.</br></br>In manufacturing alone, productivity shot up at a huge 7.8 percent annual rate in the quarter, with rates of increase in output of 9.2 percent and in hours worked of only 1.2 percent. Over the past year, manufacturers' unit labor costs fell 2.4 percent.</br></br>Some analysts said the productivity surge is evidence that the economy can grow more rapidly in the future than had been thought without causing problems with inflation. The economy "can continue to grow at around a 3 percent rate without triggering inflation," said Bruce Steinberg, macroeconomics manager for Merrill Lynch & Co. in New York.