[PEN-L:1115] BLS Daily Report

[Richardson_D]

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BLS DAILY REPORT, THURSDAY, NOVEMBER 12, 1998

Productivity in the nation's nonfarm businesses picked up the pace,
rising 2.3 percent during the third quarter of 1998, while the increase
in unit labor costs decelerated, according to BLS.  The gain in
third-quarter productivity was hoisted by the strong 3.5 percent jump in
output and a 1.2 percent gain in workers' hours.  In comparison, during
the second quarter, productivity as up just 0.3 percent. ...  (Daily
Labor Report, page D-1).
__By now, this late into an economic expansion, the productivity of
American workers should be slowing and the prices of goods and services
should be rising more quickly, says Tim Smart in the "Trendlines"
feature of The Washington Post (Nov. 11, page C9).  That's usually the
pattern at the tail end of the business cycle, as rising wages offset
any gains in production efficiency, leading to lower productivity.  But
the reverse is happening, and that's heartening news to economists.
When growth in productivity - measured as economic output per hour of
work - is greater than the increase in wages, the economy can continue
to grow without inflationary pressures. ...    
__The productivity of United States workers accelerated in the third
quarter, offsetting an increase in labor costs and giving the Federal
Reserve policy makers room to cut interest rates if they see a need to
buoy financial markets.  Gains in productivity are crucial if businesses
want to absorb rising labor costs and hold down prices to stay
competitive. ...  (Bloomberg News, New York Times, Nov. 11, page C4).
__Productivity of American workers showed a strong increase in the third
quarter, after sluggish growth in the second quarter helped to allay
fears that tight labor markets and rising wages might trigger inflation.
But according to the National Association of Manufacturer's monthly
manufacturing index, companies are less enthusiastic about growth in
1999.  Though some analysts suggest a decline in the manufacturing
employment base may initially lead to increased productivity levels, the
possibility of slower sales growth continues to erode the confidence of
business leaders. ...  (Wall Street Journal, Nov. 11, page A2).

When inflation advances faster than worker productivity and rates of
return compensating other factors of production, then inflation
expectations begin to dominate, warping decisions regarding payroll
costs and hiring, inventories and capital spending, and borrowing vs.
lending.  From this perspective, the current expansion is the healthiest
since the 1960s. ...  (David Littmann, senior vice president and chief
economist at Comerica Inc. in The Wall Street Journal, page A30).

The confidence level of owners of small businesses rose in October from
a 2-year low reached in September, according to a survey by the National
Federation of Independent Business, a small business trade group.,  The
rosier outlook of small businesses in their hiring and spending mirrors
the recent recovery of the stock market, which fell sharply during the
third quarter but turned bullish in recent weeks.  One-fifth of the
companies surveyed expect to add employees in the coming 3 months, a
historically strong number although down from record highs in the
spring.  Low unemployment continues to dog the small firms.  A record 32
percent of those surveyed reported having at least one job opening that
was hard to fill, up from 27 percent in September.  The data are
seasonally adjusted. ...  (Wall Street Journal, page A2).

DUE OUT TOMORROW:
   Producer Price Indexes -- October 1998
   Report on Quality Changes for 1999 Model Vehicles


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