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America’s Businesses and Workers Increase Productivity in Last Quarter

November 2, 1987

WASHINGTON (AP) _ Led by manufacturers, American businesses and workers increased their productivity 2.6 percent last quarter, the government said Monday, a sign that the United States is continuing to improve its competitive posture in the world economy.

The increased efficiency by the nation’s non-farm businesses in churning out goods and services in July, August and September was more than double the improvement over the past year, the Labor Department said.

Productivity among manufacturers jumped 4.5 percent as factories raised their assembly line output by 8.2 percent - the biggest increase since the first quarter of 1984 - while working their employees only 3.5 percent more hours.

That combination, plus the ability of manufacturers to keep wage gains to only 1.4 percent the third quarter, slashed the labor costs for each product coming off an assembly line an average 3 percent, the Labor Department said.

″It’s another encouraging sign for the emerging return of a more competitive U.S. economy,″ said Allen Sinai, chief economist for Shearson Lehman Brothers, a Wall Street brokerage house. ″Stronger productivity and lower unit labor costs are the key. Hopefully, it will continue.″

On Wall Street Monday, calm returned to the stock market two weeks after its $500 billion collapse. Investors shrugged off a decline in the dollar and sent the Dow Jones industrial average up 20.56 points, or 1 percent, to 2,014.09.

Five stocks advanced for every three that declined, and the value of all U.S. stocks rose $37 billion, according to a tally by Wilshire Associates. New York Stock Exchange volume came to 176.04 million shares in an abbreviated session.

Monday’s advance was the fifth consecutive gain for the Dow average. Two Mondays ago, the Dow industrials fell 508 points in a record-breaking decline.

Meanwhile, the Commerce Department reported that factory orders rose 1.1 percent in September, the largest gain in three months, and that construction spending jumped 1.5 percent, the sharpest increase since June.

Analysts said the reports Monday by the Labor and Commerce departments underscore the general health of the U.S. economy before the collapse of stock prices on world markets over the past two weeks.

″All this data is B.C. - before the crash,″ said David Wyss, chief financial economist for Data Resources Inc. of Lexington, Mass. ″There’s no question now that crash was caused by panic, not by any evidence that the economy was beginning to weaken.″

Analysts said the 8.2 percent increase in manufacturing output coupled with a factory employment gain of 110,000 workers in July, August and September both signal continued U.S. economic growth despite the falling stock prices.

While they credit a large part of the recovery to the dollar’s 40 percent drop in value against the Japanese yen and other major foreign currencies over the past two years, cost-cutting by U.S. manufacturers also is cited as a major factor.

Despite pay increases generally keeping pace with inflation this year, the 1.4 percent hourly wage gains for manufacturing workers in the third quarter translates into a 2.4 percent drop in buying power after taking inflation into account.

While the lower labor costs foretell a more competitive U.S. economy, they also can bring about a slower growing one.

″The way companies are becoming more competitive is through the weaker dollar, layoffs and wage restraints,″ said Larry Chimerine, president of Wharton Econometrics, a forecasting firm in Bala Cynwyd, Pa.

″Unfortunately all of those things tend to squeeze purchasing power and hold down the U.S. economy,″ he said. ″Exports can’t continue to push up manufacturing output increases by themselves. These recent gains are going to fall in response to weaker U.S. demand.″

Wyss said the productivity gains will help enable the U.S. economy to remain on an upward path through through 1988, but the growth will be slower than this year.

″We’ll continue to see some strong gains in competitiveness and our market share,″ he said. ″But our bigger market share is coming in a shrinking economy where, in both the United States and overseas, our markets are dropping off.″

While increases in manufacturing productivity were the most dramatic, figures for all non-farm businesses - which includes the rapidly expanding service sectors of the economy - also showed improvement.

Labor costs for each unit of output rose at an annual rate of just 1.3 percent last quarter, compared with a 2.2 percent gain for all of 1986.

And, hourly annualized wage increases for the broader group averaged 4 percent in the second quarter, an indicator that all but factory workers are keeping slightly ahead of inflation so far this year.

Meanwhile, the total output of goods and services by non-farm businesses rose 4.4 percent with only a 1.7 percent increase in the number of hours worked.

The combination produced the overall 2.6 percent third-quarter productivity gain, more than double the 1.1 percent improvement over the last 12 months and the biggest single-quarter increase since the first three months of 1986, when it jumped 6.6 percent.

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