Productivity rises in US -- but so does inflation again

Welcome news that American business productivity is increasing may aid President Carter's last-minute re-election chances. But it leaves the long-range economic picture almost as cloudy as ever.

Productivity in the country's private businesses, excluding farms, rose 2.6 percent in the third quarter (July-August-September) of 1980, the US Labor Department announced Oct. 27. The third-quarter rise is the largest increase in three years. It strengthens the impression that the United States is coming out of what could be one of the shortest recessions of recent times. But it leaves an inflation of 12 percent, a restrictively high interest rate that holds back housing and construction, and the prospect of an explosion in wage demands right after the election.

Last Friday the government's Bureau of Labor Statistics announced that consumer prices shot up 1 percent in September, or 12.7 percent higher than a year ago. And Ronald Reagan immediately attacked the "utter failure" of the administration's economic policies.

This week, in its productivity figures, the politically neutral bureau throws an economic bouquet to President Carter, who is likely to flourish it during Tuesday night's television exchange to argue that the economy is not so badly off after all and, anyway, it's getting better.

Under normal political experience the present economic circumstances -- inflation, unemployment, high interest rates -- would almost certainly defeat presidential incumbent Carter. The fact that polls show the election is close indicates several possibilities: The public believes recovery will arrive soon; the public has decided that neither presidential candidate has the answer to stagflation; or that the public is more interested in other issues.

Economists are uncertain over present confused signals. Former Federal Reserve Board chairman Arthur F. Burns, a Reagan adviser, notes that the economy seems to be bouncing back from a briefer recession than expected -- and at a time when interest rates are still rising. This has led to speculation that the recovery is shallow and that it may tip into another recession if authorities continue to fight inflation by keeping interest rates high.

With notable exceptions, such as the auto and steel industry were unemployment is high, wages have not kept up with inflation. An explosive interval of catch-up wage demands is likely to meet the White House next year, whoever is president. Latest figures show spendable earnings declined an adjusted 0.4 percent in September compared with 0.3 percent in August.

Reagan would slash personal income taxes in the hope of stimulating productivity and reinvigorating the economy. At the same time he relies on big unspecified budget cuts to balance the budget, while eliminating "waste, extravagance, abuse, and outright fraud." He would also boost defense expenditures.

Carter advocates tax cuts but at the rate of about $28 billion in the first year, compared to a Reagan cut estimated at around $39 billion. The Reagan cuts would go primarily to individuals through the income tax reduction, whereas the Carter cuts would appear to flow chiefly to business.

In the second quarter (April-May-June), business output dropped an extraordinary 12.3 percent contrasted to a rise in the third quarter of 1.1 percent. As to numbers of hours worked by employees, this fell in the second quarter 8.9 percent; the figure is still declining but now at an annual rate of 1.4 percent.

Congress will return in a lame-duck session Nov. 12 in an attempt to write a new budget. On Dec. 10 the influential Joint Economic Committee of Congress holds an unusual meeting here, bringing together leaders of labor, management, and government and representatives of the winning and losing presidential candidates. This represents a new effort to lay a successful economic course.

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