Productivity of the U.S. economy rose in the third quarter at its strongest rate in a 1 1/2 years while new orders received in September for manufactured goods increased, two indications that the economy was expanding at a healthy clip before the stock market plunge last month, the government reported yesterday.
The Labor Department said third-quarter output of private businesses other than farms rose at a 4.4 percent seasonally adjusted annual rate while the number of hours worked increased at only a 1.7 percent pace. As a result, productivity -- output per hour worked -- climbed at a 2.6 percent rate, the biggest gain since the first quarter of 1986, when it surged at a 6.6 percent rate.
Nonfarm productivity rose at a revised 1.4 percent rate in the second quarter after an extended period of virtually no growth. Even with the strong third-quarter performance, productivity was up only 1.1 percent from the third quarter of 1986, the department said.
The larger productivity gain also offset most of a 4 percent rate of increase in compensation per hour, so that unit labor costs, a major influence on inflation, rose at a 1.3 percent rate. In the past year, unit labor costs increased 1.9 percent.
Meanwhile, the Commerce Department said new orders received in September by U.S. manufacturers rose $2.3 billion, or 1.1 percent, to a level of $205.7 billion. New orders had dropped 1.3 percent in August, and the September level was only slightly higher than that of June. The largest increases came in primary metals industries, with more than a 10 percent increase in orders.
The orders picture was a little less bright for capital goods industries. New orders for nondefense capital goods, an indicator of business plans for future investment, fell 0.3 percent in September following a large 7.6 percent drop in August.
While orders have generally not gone up much since they surged in June, that increase led to the output gains of the third quarter, which in turn provided the underpinning for the strong rise in productivity. Output per hour worked usually scores gains when output rises rapidly.
Commerce also said construction spending jumped 1.5 percent in September, the biggest increase in five months. Spending for private and public construction projects rose to a seasonally adjusted annual rate of $406.3 billion in September following a revised 0.1 percent increase in August. The increase reflected strength in a wide variety of categories.
Productivity rose almost twice as fast in the manufacturing sector as in nonfarm businesses overall. Manufacturing output jumped at an 8.2 percent rate, while hours worked rose 3.5 percent, pushing productivity up at a 4.5 percent rate. Manufacturing productivity went up even faster -- at a 6.4 percent rate -- in the second quarter, but that gain was based on a much slower increase in output and a decline in hours worked.
Over the past four quarters, manufacturing productivity rose 3.9 percent, the largest such increase since the first quarter of last year, when it was up 5.2 percent compared to the first quarter of 1985.
Unit labor costs in manufacturing fell at a 3.0 percent rate in the third quarter as compensation increased at only a 1.4 percent pace. Over the past year, unit labor costs dropped 2.6 percent. In durable goods manufacturing, compensation rose only 1 percent in the past year, while unit labor costs dropped 3.1 percent.
The broadest productivity measure, covering all U.S. business, rose at a 2.9 percent rate in the third quarter, with unit labor costs up 1.3 percent. However, most analysts focus on changes in the nonfarm business figures as a more reliable indicator.