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PRODUCTIVITY MAKES BIGGEST DROP IN 5 YEARS

American business productivity in the April-June quarter registered the biggest decline in more than five years as production costs rose, the government said Wednesday in a revised report.

The Labor Department said second quarter productivity - defined as output per number of hours worked - dropped at an annual rate of 2.5 percent in the non-farm business sector. That was the sharpest decline since the January-March quarter of 1989, when productivity fell at an annual rate of 3.7 percent.Unit labor costs rose at a 3.4 percent annual rate, higher than the 2 percent initially reported. That increase is likely to cause concern on Wall Street, where jittery investors have reacted negatively to any signs of inflation, which drives down the value of their holdings. Unit labor costs rose 3.1 percent in the first quarter.

But the government said hourly compensation rose at an annual rate of 0.8 percent, the smallest increase since the first quarter of 1988.

About two-thirds of the cost of a product comes from labor costs.

Output was up 2.7 percent, the Labor Department said, but that was lower than the 4.1 percent rate initially reported. Output was up 5.2 percent in the first quarter.