U.S. productivity plummeted 3.1 percent in the last three months of the year -- the steepest slide in four years -- and rose only 0.2 percent for all of 1985, the Labor Department reported yesterday.
The government earlier had estimated a 1.8 percent drop in fourth-quarter productivity, which measures how efficiently the nation produces goods and services. The fourth-quarter drop was the only decline in 1985.
Nonfarm business productivity fell 0.2 percent in 1985, the first yearly decline since the 1982 recession. For manufacturing alone, productivity dropped 2.7 percent last year.
The major reason for the decline in productivity -- output per person -- was the low level of output last year, said Robert Ortner, Commerce Department chief economist. About the only way to have achieved a productivity gain last year would have been for businesses to lay off employes, which would have increased output per person, he said. But employment rose in 1985.
"Productivity did poorly in 1985 and the main reason was sluggish growth," Ortner said. "I think we'll see some pickup in productivity this year along with economic activity. Output will grow faster and so will productivity."
The economy grew at a 2.3 percent rate for 1985, the slowest pace since the 1982 recession.
Productivity is important in keeping down costs. With labor accounting for about 75 percent of costs for businesses, the less labor required for each unit of output, the better, economists say. Ortner also said he expects wage rates to remain moderate this year because of the excess supply of labor and because many long-term wage contracts remain in effect.
Federal Reserve Board Chairman Paul A. Volcker told the House and Senate banking committees last week that the recent productivity trends "introduce an unwelcome cautionary note" about the economy's long-run health and "raise further questions about the growth potential."
"In the end, it is largely productivity that governs prospects for per-capita income growth," Volcker said. "Together with growth in the number of workers, it sets a limit on our total economic growth."
At the same time that overall productivity fell 3.1 percent in the fourth quarter, output rose 1.1 percent and paid hours increased at a 4.3 percent annual rate. The quarterly productivity decline was the largest since a 5.5 percent drop in the last three months of 1981, the Labor Department said.
Unit labor costs, which reflect changes in hourly compensation and productivity, rose at a 6.7 percent annual rate in the fourth quarter, the sharpest increase since costs rose 7.2 percent in the third quarter of 1982. The narrower category of nonfarm business also showed a 3.1 percent productivity decline in the fourth quarter. Output rose 1.5 percent while all hours worked rose 4.7 percent. Unit labor costs rose at a 6.6 percent annual rate, the largest increase since the third quarter of 1982.
"As in tbe more comprehensive business sector, the increase in hours in the fourth quarter reflected the largest employment gain and the first increase in average weekly hours in 1985," Labor said.
In manufacturing, productivity fell at a 1 percent annual rate in the fourth quarter and output increased 2 percent. The decline was the first for manufacturers all year -- the largest in four years.