Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, August 11, 1993                   TAG: 9308110049
SECTION: BUSINESS                    PAGE: B5   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

WORKER PRODUCTIVITY TAKES A DIVE

"It was a temporary slump," said economist Chris Varvares of Laurence H. Meyer & Associates, a St. Louis economic forecasting service.

The Labor Department said Tuesday that productivity - defined as output per number of hours worked - plunged 2.5 percent in the second quarter, the steepest decline since a 3.9 percent drop in the first quarter of 1989.

Increased productivity is essential for improved living standards and to make American products competitive in overseas markets, economists maintain.

The second-quarter slide followed a 1.6 percent drop from January through March, the first back-to-back declines since a three-quarter drop ending with January-March 1989.

But Varvares and other analysts said the declines accompanied weak economic growth during the first half of the year.

After employment growth failed to keep up with the rate of production in 1992, companies began adding workers in the first half of 1993, "just when the economy hit a slow spot," Varvares said.

So growth in the number of hours worked outpaced output, resulting in falling productivity.

Varvares forecast the GDP, the total output of goods and services in the United States, will grow at a 2.8 percent rate in the current quarter and 3.3 percent from October through December, resulting in productivity growth at a 1.5 percent annual rate during the second half of the year.

That would be slightly better than the 1 percent growth rate that productivity averaged during the 1970s and 1980s. It grew at an average annual rate of 2.5 percent during the prior two decades.

Top economists surveyed in early August by the newsletter Blue Chip Economic Indicators also project a moderately improved economy in the last half of 1993.

The consensus forecast of the 51 economists called for annual growth rates of 3.1 percent from July through September and 3.3 percent during the final three months of 1993, according to the Sedona, Ariz., publication.

But the consensus also projects the expansion will slow to 2.8 percent in 1994 because of the curbing effects of the tax increases in the deficit-reduction package that President Clinton signed on Tuesday.

Despite the faster growth in the last half of 1993, overall growth for the year will be limited to about 2.5 percent because of the sluggish pace of the first six months.

One of the ways productivity improves living standards is by curbing the rate of inflation. Unit labor costs in the second quarter rose at a 4.2 percent rate following a 4.8 percent rate in the first quarter.

Labor costs, which represent about two-thirds of the cost of a product, had risen just 0.9 percent in the final quarter of 1992 when productivity was growing at a 3.2 percent rate.

The report said the number of hours worked jumped 4.3 percent from April through June after increasing 2.5 percent in the first three months. It was the largest gain in hours worked since the first quarter of 1989.