September 6, 2012 in Business

U.S. workers boost productivity

Slow pace of hiring at root of 2.2 percent gain
Martin Crutsinger Associated Press
 
Associated Press photo

A worker at the Ford Stamping Plant in Chicago Heights, Ill., inspects an inner door panel.
(Full-size photo)

WASHINGTON – U.S. companies got more output from their workers this spring than initially thought. Productivity rose at a modest 2.2 percent annual rate in the April-June quarter, largely because employers cut back sharply on hiring.

Most economists expect productivity will slow later this year, a trend that could boost hiring.

The Labor Department said Wednesday that productivity in the second quarter was better than its initial estimate of a 1.6 percent gain.

The main reason for the increase was the government revised growth in the second quarter to an annual rate of 1.7 percent, up from an initial estimate of 1.5 percent.

That led to more output, which boosted productivity. Productivity is the amount of output per hour worked.

Labor costs rose at an annual rate of 1.5 percent, slightly lower than the 1.7 percent initially estimated.

Rising productivity can boost corporate profits. It can also slow job creation if it means companies are getting more from their current staff and don’t need to add workers.

Still, there are limits to how much companies can squeeze from their staffs. When that happens, productivity slows and companies typically must hire more workers to keep pace with demand.

Economists said they expected productivity will slow from the spring pace for the rest of this year and through 2013. Michael Englund, chief economist at Action Economics, said he was looking for productivity growth at a slight 1 percent or less in 2013.

Peter Newland, senior economist at Barclays, said productivity should slow as companies increase hiring in the coming months.

One reason productivity improved in the second quarter is hiring slowed to just 75,000 jobs a month from April through June.

U.S. employers added 163,000 jobs in July, the best month of hiring in five months. The unemployment rate edged up to 8.3 percent. Hiring probably won’t accelerate from that level unless growth picks up or productivity slows, economists said.

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