Industry's trimmed-back wheels turning more smoothly
Washington — American managers are energetically cutting production costs. As a result, industry is posting big gains in efficiency, which may help bolster sagging corporate profits. At least in the short term the trend will also help improve the nation's competitiveness in international markets.
Between July and September, business productivity grew at a 4 percent annual rate, hitting a record high, the Bureau of Labor Statistics reported Thursday. Productivity is an index of efficiency, tracking how much employees on average produce for each hour they work.
Productivity increases in a variety of sectors ''had to be the result of larger than expected cost-cutting efforts by managers,'' said George Sadler, a senior economist at the American Productivity Center in Houston. ''I don't see any way for Germany or Japan to jump ahead of the US on productivity this year.''
For a lasting effect, economists caution, the rapid pace of productivity gains would have to extend over several quarters. ''It is not an unusual occurrence around the turning point in an economy to see productivity pop up,'' notes Nariman Behravesh, an economist with Wharton Econometric Forecasting Associates.
It is considered unlikely that the third quarter's gain will be repeated in coming quarters. The most recent one came because ''output is beginning to grow but managers are continuing to cut employment and (working) hours. People on the job are working harder.''
But when demand comes back, people ''will step up output by hiring more workers,'' says Charles Steindel, a senior economist with the First National Bank of Chicago. That will tend to trim increases in productivity.
The productivity gains in the third quarter came because companies cut back on the size of their labor force and the amount of time employees put in. As a result, hours worked either grew more slowly or fell faster than output in some segments of the economy.
For example, in the nonfarm business sector, output increased 0.7 percent over the preceding quarter, while the hours used to produce the goods dropped 2. 8 percent. As a result, productivity increased 3.6 percent. In manufacturing, productivity climbed 7.1 percent; output dipped 1.9 percent and hours worked dropped 8.5 percent.
''We are doing better than we had any right to expect this year,'' says Walter Dolde, senior economist with A. Gary Shilling & Co., an economic consulting firm.
For next year, most economists do not expect productivity in the nonfarm business sector to rise more than 2 percent. In 1981 it rose 1.4 percent and in 1980, fell 0.9 percent.
One reason for the modest expectations is that only a weak economic recovery is expected. And that is not likely to be enough to bring back into action the nation's idle factories. Currently only about 70 percent of productive capacity is being used.
''There is an enormous amount of unused capacity in the country right now which is not very productive,'' says Robert Gough, senior vice-president of Data Resources Inc., another economic consulting firm.
The impact a stronger recovery can have on productivity growth is seen in a forecast from Rosanne Cahn, a vice-president and economist at Goldman, Sachs & Co. She is predicting that inflation-adjusted gross national product will rise in excess of 5 percent during the second, third, and fourth quarters of 1983, a performance stronger than many other economists expect. As a result, she sees productivity rising by roughly 80 percent of the GNP increase, or 3.5 percent, a forecast significantly higher than other economists'.
Even if productivity only grows at the 2 percent rate expected by most economists, the US competitive position will not erode and may improve.
''Economies in other nations are very soft by postwar standards, Mr. Dolde says.
''We have fallen first and hit bottom. Some of the others are still falling, '' adds Mr. Sadler at the American Productivity Center.
But longer term, the US competitive position is still weakened by having older factories in many basic industries - including steel and autos - than its trading partners. And a strong US dollar is another major hurdle. ''The dollar is 25 to 30 percent higher than it was in November of 1980,'' Dolde notes.