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U.S. Productivity Declines

Productivity in the nonfarm business sector fell 0.2 percent in the second quarter, the first decline since the first three months of 1995, the Labor Department reported Tuesday.

Economists had expected an increase of 0.7 percent from the first quarter, when productivity surged a revised 3.5 percent from an initial estimate of 1.1 percent. Output in the first three months of 1998 jumped 7 percent, the biggest increase in six years.

During the second quarter, employees worked more hours, but did not produce a corresponding increase in goods. Hours edged up 1.6 percent compared to a 1.3 percent hike in output.

The second-quarter decline in productivity accounted for the sharp run-up in unit labor costs, which increased to 4.1 percent from 1.1 percent in the previous quarter.

Still, employers were able to refrain from raising prices to cover the increased labor costs because prices of nonlabor inputs, such as raw materials, tumbled 6.6 percent in the second quarter, the steepest drop since 1982.

Real hourly compensation actually slowed in the latest quarter to a 3.8 percent increase from a 4.6 percent rate in the previous quarter.

The drop in productivity appears to have occurred entirely in the service sector, as manufacturing productivity climbed 3.3 percent from 1.4 percent in the first quarter. Unit labor costs in manufacturing edged down 0.7 percent. Within manufacturing, durable goods producers increased their productivity 5.7 percent while nondurable producers' productivity rose just 0.2 percent.

Labor efficiency in manufacturing has risen every quarter since the third quarter of 1993.

Written By Jeffry Bartash