US workers are producing more at lower cost, and that bodes well for consumers
The US economy is experiencing a ''productivity pop,'' says economist Edward Yardeni, that bodes well for ''keeping a lid on prices'' in the months ahead. That's the way Dr. Yardeni, director of economics for Prudential-Bache Securities, interprets some exceptionally good news on the productivity front.
Simply put, workers in the United States are turning out more goods at less cost per unit, which translates into relatively stable price prospects for American consumers.
Productivity is extremely important, says Janet L. Norwood, commissioner of the Commerce Department's Bureau of Labor Statistics, because it directly affects the nation's underlying inflation rate.
If the output of goods and services is rising faster than the cost of wages and benefits, the result is a more productive economy. Employers have less compulsion - or opportunity - to pass higher labor costs on to consumers in the form of higher retail prices. This is especially true now, Yardeni says, because the US economy remains ''intensely competitive,'' with consumers sensitized to price hikes.
''Traditionally after a recession,'' he says, ''businessmen absorbed their productivity gains largely into profits,'' trying to recoup recessionary losses.
''This time around, a larger part of the profits stemming from productivity gains is being used to keep a lid on prices,'' he says. ''No longer are productivity gains something that a businessman can keep for himself. He has to pass them on to his customers or they will go elsewhere.''
Over much of the last decade, wage settlements far outstripped productivity gains, with the result that each unit of output - a pair of shoes, a suit or dress, a car, or a slab of steel - cost more to produce. When labor costs were tacked onto final price tags, the result was inflation.
Today the situation is far different. The output of goods and services is climbing much more swiftly than wage costs - so much so, reports the Labor Department, that unit labor costs declined 2.1 percent in the April-June quarter.
Productivity, by contrast - defined as output per hour of all persons in the business sector - rose 5.7 percent in the second quarter, following a 2 percent hike in the January-March period. During 1982, productivity actually dropped.
One reason for the productivity surge, Dr. Norwood says, is that employers are getting more out of their existing labor forces - including longer hours of work - before rehiring people who were laid off.
''There is not very much (new) hiring yet,'' she says. ''Increased hours, yes , but not as much labor input, as if more people had been hired.''
She notes a general ''tightening up on employment,'' as businessmen - stung by recurrent bouts of inflation and recession - ''wring inefficiency'' out of their operations.
''Employers are much more alert to the profit situation,'' says Dr. Norwood. ''They are hiring more carefully and not giving in to large wage increases.''
''During the depths of a recession,'' says Rudolph G. Penner, incoming director of the Congressional Budget Office, ''employers are reluctant to lay off all their skilled workers, in whom they have a big investment. So, when coming out of recession, they use their remaining labor force more intensively.''
A number of industries and individual firms, having pruned their employee rolls, plan to run on a smaller work force, either because their market has shrunk or because automation has assumed part of the work load. For this reason, coupled with the general slowness of employers to rehire, the nation's unemployment rate - now 9.5 percent - is expected to decline very slowly.
Although productivity usually jumps for a few quarters after a recession, experts say two factors combine to make the present gain outstanding.
One is what Dr. Norwood calls the ''deceleration'' of wage costs. The other, she says, is the ''phenomenal'' increase in output of goods, reflected in the 9. 2 percent surge of the gross national product (GNP) in the second quarter of 1983.
No one expects the GNP to gallop ahead at its present pace beyond the third quarter. Once merchants have restocked depleted warehouses and shelves, orders for fresh supplies of goods should slow. Analysts also expect that wage hikes and other compensation paid to workers will quicken somewhat as the recovery moves along.
No problem arises from that, so long as the rise in hourly compensation does not exceed the growth rate of productivity.