Productivity fell a revised 0.3% in 3rd quarter Threat of inflation doesn't look imminent


WASHINGTON -- Declining productivity and continued job creation in the United States may be setting the stage for increased price pressures down the road, though few signs point to an immediate inflationary threat, two reports released yesterday suggest.

Productivity, which measures the time, effort and cost of providing goods and services, fell a revised 0.3 percent in the third quarter, the Labor Department said. It was the first decline since last year's fourth quarter, and a worse showing than the government's initial estimate a month ago that productivity grew 0.2 percent in the third quarter. Productivity rose at a revised 0.6 percent rate in the second quarter.

Separately, the government said first-time jobless claims fell last week by 8,000 to 336,000 -- in line with expectations. The less volatile four-week average of new claims edged up for the week ended Nov. 23 to 337,750 from 336,750.

Taken together, the reports suggest that price pressures could arise as the economy rebounds from its third-quarter slump. "Inflationary pressures remain modest, but are bubbling just below the surface, given the low unemployment rate and the lack of any improvement in productivity," said John Williams, chief economist at BT Securities Corp. in New York. The news followed by a day the Federal Reserve's announcement that "moderate economic growth continues to be reported in nearly all Federal Reserve districts," with no signs of climbing consumer prices. That report, commonly known as the "beige book," was viewed as an indication Fed policy-makers will leave overnight -- borrowing costs for banks unchanged when they meet Dec. 17.

Though many economists believe the government's productivity reports understate actual economic activity, none disagree that gains in productivity are crucial to businesses if they want to keep their prices from rising and stay competitive. A key aspect of the productivity report that investors watch is the unit cost of labor, which measures wages. That component rose an unrevised 3.7 percent annual rate in the third quarter, up from a 3.3 percent pace in the second quarter. A separate measure showed that compensation per hour rose 1.1 percent in the third quarter, after adjustment for inflation, up from a 0.1 percent rise in the second quarter.

Pub Date: 12/06/96

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