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The productivity of American workers increased 1.4 percent last year, the government said, matching the average gains of the six previous years but falling short of the growth needed to meet the forecast on which President Bush is basing his budget.

Increased productivity - getting each worker to produce more each hour he or she is on the job - is vital to economic growth without inflation, particularly given the current squeeze in the labor market.But the Labor Department reported non-farm productivity was unchanged in the fourth quarter of 1988 and was up 1.4 percent for the year. That marked an improvement over 1987 but was exactly in line with the 1.4 percent annual average in productivity gains since the end of the 1981-82 recession.

Output in the non-farm sector was up 5.1 percent for the year, but average hours worked climbed 3.6 percent, the department's Bureau of Labor Statistics reported.

Manufacturers reported a 3.2 percent productivity gain for 1988, down from 3.4 percent in 1987. Productivity in the business sector dropped 2.0 percent in the final quarter of 1988 and ended the year up 1.0 percent.

The productivity report came as the Federal Reserve Board prepared to set monetary goals for 1989 and as Bush readied his budget proposals.