WAGE INFLATION RATE IS STILL LOW

Today the Labor Department's Bureau of Labor Statistics reported revised seasonally-adjusted annual rates of change in productivity--output per hour--for the fourth quarter and for all of 1995.

Business productivity fell at a 0.5 percent annual rate in the fourth quarter, accompanied by an annualized rise in the implicit price deflator for business output of 0.8 percent -- the smallest increase since the first quarter of 1967. The deflator is an indicator of wage inflation and reflects changes in unit labor costs and unit nonlabor payments. In the third quarter, the deflator increased at an annualized rate of 2.1 percent.

For all of 1995, business productivity increased 0.9 percent, a little more than the 0.7 percent gain of 1994. Output grew 2.5 percent in 1995, and hours worked increased 1.6 percent. The hours increase reflects an employment increase of 2.1 percent and a decline in average weekly hours worked of 0.5 percent. This decline in average weekly hours was the first annual decline since the recession year of1991.

Hourly compensation increased 3.5 percent in 1995, up from a 2.2 percent increase in 1994. Real hourly compensation increased 0.6 percent in 1995, a modest rise, following declines of 0.4 percent in both 1993 and 1994.

Unit labor costs increased 2.6 percent during 1995, compared with a 1.4 percent increase a year earlier. But, the growth in the implicit price deflator in 1995 was identical to that of 1994, a modest 2.2 percent.

The bottom line: Output per hour in 1995 was higher than in 1994; but, wage inflation for both years remained under control.

Byline: Lafferty (MF Merlin)