Productivity Jumped 2.2 Percent During 1994 Business Output Reached 10-Year High While Labor Costs Rose Less Than 1 Percent

American business productivity improved in 1994 for a fifth straight year, boosted by the largest output growth since 1984. At the same time, businesses held labor costs to the smallest gain in 30 years.

Productivity - defined as output per hours worked - jumped 2.2 percent last year, faster than the 1.5 percent advance in 1993. It was the fifth consecutive gain since productivity fell 0.9 percent in 1989.

Businesses held growth in unit labor costs - typically two-thirds of the cost of a product - to 0.9 percent, the smallest increase since an 0.8 percent increase in 1964. Costs have tapered off each year since they rose 5.1 percent in 1990.

“It says there is very little risk of inflationary pressures building,” said Stephen S. Roach, an economist with Morgan Stanley & Co. in New York.

Economists watch growth in productivity for insights into long-term economic trends.

Over time, productivity determines the nation’s living standards and the competitiveness of its products overseas. Strong productivity is likely to hold off inflationary pressures.

Some analysts contend productivity growth will slow and possibly decline as companies continue to add workers and the current business cycle matures.

Others, like Roach, disagree.

“Employers are getting more out of their workers by re-engineering existing manufacturing and service processes, by using more information technology and by out-sourcing,” Roach contended.

“It’s all part and parcel of the productivity revolution of 1990s and I believe it’s ongoing,” he added.

Productivity growth slowed to a 1.8 percent seasonally adjusted annualized advance in the final three months of 1994, from a strong 3.2 percent during the previous quarter.

Output in 1994 jumped 5.2 percent, up from 4.1 percent a year earlier and the largest since an 8.2 percent surge in 1984 when the government began keeping output records.

It advanced at a 5.4 percent rate from October through December, compared with 4.3 percent from July through September.

Manufacturing productivity spurted 4.9 percent in 1994, even faster than the 3.2 percent advance in 1993.

Factory output rose 6.2 percent and hours worked increased 1.2 percent.