U.S. business productivity fell 1.3 percent in the last three months of 1985, the sharpest decline in four years, holding the productivity gain for the full year to only 0.3 percent, the Labor Department said yesterday.
Additionally, unit labor costs increased for many sectors, suggesting that relatively low labor costs of the past few years may have ended and prices may rise in the next few months.
Productivity -- a gauge of the economy's efficiency in producing goods and services -- is one of the keys to keeping down labor costs, a major determinant of overall price increases. In the long run, low productivity would tend to make U.S. goods and services less competitive against foreign products, economists said.
Business productivity rose 2.1 percent in 1984.
"Over the past year, the fact that productivity didn't grow or barely grew reflects the fact that the economy didn't grow very much," said Robert Ortner, Commerce Department chief economist. Ortner said that he hopes strong growth in spending on labor-saving equipment would help to improve productivity and lead to further business expansions.
The Labor Department said that the fourth-quarter drop in productivity reflected a 2.5 percent increase in output, while hours worked grew more rapidly, 3.9 percent. In the third quarter, business productivity rose 1.9 percent.
Unit labor costs, which reflect changes in productivity and hourly compensation, rose 5.5 percent for businesses in the fourth quarter, the largest jump since the 7 percent increase in the third quarter of 1982, Labor said.
The price index that measures price changes for the goods and services which comprise business output increased at a 2.7 percent annual rate in the fourth quarter, following a 2 percent rise in the third quarter.
Productivity also fell for nonfarm businesses during the last three months of 1985, dropping 1.8 percent after increasing 0.3 percent in the third quarter. The last time productivity fell in this group was in the third and fourth quarters of 1984, when productivity declined 1.2 percent in each quarter.
For 1985, productivity was unchanged for nonfarm businesses, and unit labor costs rose 3.7 percent compared with 2 percent in 1984.
For manufacturers, the bad news on productivity continued. Productivity fell in the fourth quarter as output grew more slowly than hours, the Labor Department said. The decline was the first in a year.
Unit labor costs for manufacturers rose 4.8 percent in the fourth quarter, the largest increase in a year, Labor said.
For the year, manufacturers posted the smallest annual productivity improvement since the recovery began three years ago, Labor said. Productivity rose 2.6 percent in 1985, reflecting a modest 2.4 percent increase in output and lower unemployment.