U.S. productivity soars as employers slash payrolls

WASHINGTON — Associated Press
Last updated on Friday, Aug. 14, 2009

U.S. productivity surged in the spring by the largest amount in almost six years while labour costs plunged at the fastest pace in nine years. The results point to a recession losing steam, but they do not bode well for the unemployed or those forced to work shorter weeks who were hoping for more hours.

The U.S. Labour Department said yesterday that productivity, the amount of output per hour of work, rose at an annual rate of 6.4 per cent in the April-June quarter, while unit labour costs dropped 5.8 per cent. Both results were greater than economists expected.

Productivity can help boost living standards because it means companies can pay their workers more, with those wage increases financed by rising output. However, in this recession, companies have been using their productivity gains from layoffs and other cost cuts not to hire again but to bolster their profits.

The result: Many companies have been reporting better-than-expected second-quarter earnings despite falling sales.

Businesses producing more with fewer employees means millions of unemployed Americans likely will continue to face a dismal job market. Some analysts also worry that companies' aggressive cost-cutting could make it hard to mount a sustainable recovery. That's because a lack of wage growth and a shortage of jobs will likely depress consumer spending, which accounts for about 70 per cent of U.S. economic output.

Ideally, businesses would use the current productivity gains to stabilize their own financial situations and as the economy rebounds, resume hiring to meet the rising demand, analysts said.

"Hopefully, businesses will stop the layoffs and start hiring again so that consumers will have the ability to spend, but that is a tricky transition," said Mark Zandi, chief economist at Moody's Economy.com.

In a second report, the Commerce Department said wholesale inventories declined for a record 10th consecutive month, falling 1.7 per cent in June. That was nearly double the 0.9 per cent decrease economists had expected.

But in an encouraging sign, sales rose 0.4 per cent for a second straight month. The first back-to-back increases in a year boosted hopes that businesses will begin to ramp up production to meet rising demand.

The second-quarter productivity increase reflected that the number of hours worked fell much faster than output dropped. Total hours worked dropped at an annual rate of 7.6 per cent, while the output of non-farm businesses fell at a 1.7 per cent rate.

The U.S.'s total output of goods and services, as measured by the gross domestic product, fell at an annual rate of 1 per cent in the second quarter. That was 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.

Many economists believe the recession is on the verge of ending. Should the economy start to grow in the second half of this year, some companies might boost employment - if demand for their products showed a sustained increase.

Still, the leaner work force should help keep productivity rising in coming quarters although the gains are not expected to be as large as the jump in the spring.

http://www.theglobeandmail.com/report-on-business/us-productivity-soars-as-employers-slash-payrolls/article1248985/