Ahead of the Bell: Productivity

(AP) – Aug 10, 2009
WASHINGTON — Productivity likely surged by a sizable amount in the spring as businesses worked to hold down costs in the face of the worst recession to hit the country in the post World War II period.
Economists surveyed by Thomson Reuters expect productivity grew at an annual rate of 5.3 percent in the April-June quarter. The Labor Department will release the report at 8:30 a.m. EDT Tuesday.
A productivity increase of 5.3 percent would be more than three times higher than the 1.6 percent advance recorded in the first three months of the year.
Economists are expecting the surge in productivity because they believe that businesses continued to lay off workers and trim the number of hours being worked by their remaining employees aggressively in an effort to trim their labor costs.
This effort is expected to show that unit labor costs fell at an annual rate of 2.4 percent in the second quarter, compared to a 3 percent rise in the first three months of the year.
The improvement in productivity is occurring because businesses have been successful in cutting the number of hours worked at an even faster pace than their output has been falling.
The nation's total output of goods and services, as measured by the gross domestic product, fell at an annual rate of 1 percent in the second quarter, a much slower rate of decline than the previous two quarters, when the economy shrank at the fastest pace in more than a half-century.
Productivity, the amount of output per hour of work, is a key ingredient for rising living standards because it means that companies can pay their workers more with the wage increases financed by rising output.
However, in the current hard times, companies are expected to use the productivity gains to bolster their bottom lines, meaning that the increases will go to shoring up company profits rather than boosting workers' wages and benefits.
But many economists believe that the current recession, already the longest in the post World War II period, is on the verge of ending. If the economy starts to post better growth in the second half of this year, companies are expected to switch from layoffs and trimming workers' hours to boosting employment as demand for their products increases.
The leaner work force, however, should help keep productivity rising in coming quarters although the gains are not expected to be as large as the jump in the spring.
Copyright © 2009 The Associated Press. All rights reserved.

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