Productivity of U.S. Workers Jumps, Labor Costs Drop
The productivity of U.S. workers rose in the second quarter at the fastest pace in almost six years as companies squeezed more out of remaining staff to boost profits.
Productivity, a measure of employee output per hour, rose at a 6.6 percent annual rate, the most since the third quarter of 2003, revised figures from the Labor Department showed today in Washington. Labor costs fell by the most in nine years.
Lower expenses helped boost profits last quarter by the most in four years, a necessary first step in slowing firings and easing the worst employment slump in the post-World War II era. Productivity gains also help to limit inflation, giving Federal Reserve policy makers leeway to hold their benchmark rate near zero for a longer period.
“We’re getting good productivity gains, that’s something that should fuel profit growth,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York, who accurately forecast the increase in productivity. The report “supports the Fed’s view that inflation risks are minimal and the key issue they should focus on is spurring growth.”
Labor costs, adjusted for the gain in efficiency, decreased at a revised 5.9 percent annual pace, the report showed.
Economists projected the gain in productivity would be unrevised from the 6.4 percent the government estimated last month, according to the median of 63 forecasts in a Bloomberg News survey. Estimates ranged from increases of 5.8 percent to 6.7 percent. Unit labor costs, which are adjusted for efficiency gains, were projected to drop 5.8 percent.
Hours Worked
Hours worked fell at a 7.6 percent pace, while output dropped at a 1.5 percent rate.
A separate, private report today showed companies eliminated more jobs than forecast in August, signaling that employers have yet to gain confidence about a recovery. The estimated 298,000 drop was bigger than forecast and followed a revised 360,000 decline the prior month, according to figures from ADP Employer Services.
Compensation for each hour worked climbed at 0.3 percent annual pace, after a decline in the prior quarter, according to the Labor Department’s report today.
Compared with the second quarter of 2008, productivity rose 1.9 percent, more than previously estimated. Labor costs were down 1.2 percent year-over-year.
Among manufacturers, productivity increased at a 4.9 percent pace in the second quarter from the prior three months.
August Payrolls
A Labor Department report Sept. 4 may show payrolls fell by 225,000 in August and the unemployment rate rose to 9.5 percent, according to a Bloomberg survey. The economy has lost 6.7 million jobs since the recession began in December 2007, the biggest employment slump in any post-World War II economic downturn.
Leaner workforces allowed companies to protect earnings while the economy shrank at a 1 percent annual rate last quarter. Corporate profits rose 5.7 percent from the prior three months, the biggest gain since the first quarter of 2005, Commerce Department figures showed last week.
Dell Inc., the world’s second-biggest maker of personal computers, topped second-quarter profit and revenue estimates after slashing costs. Chief Executive Officer Michael Dell, on a quest to save $4 billion a year, has farmed out 40 percent of the Round Rock, Texas-based company’s manufacturing.
The quarter “demonstrates the discipline with which we are managing our business,” Chief Financial Officer Brian Gladden said in a statement on Aug. 27.
Fed Policy
Rising productivity may help Fed officials build a case for keeping the benchmark lending rate close to zero for the foreseeable future. In addition to cutting rates, Fed policy makers injected billions of dollars to unclog the financial system after lenders clamped down on credit.
In the 1990s, former Fed Chairman Alan Greenspan was one of the first to recognize productivity was accelerating because of the increased use of computers and the Internet, and that the improvement would contain inflation even as the economy gained strength and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999.
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