By Martin Crutsinger
WASHINGTON – U.S. companies got more output from their workers this spring than initially thought, especially as the pace of hiring slowed dramatically.
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.
Productivity, the amount of output per hour worked, increased at an annual rate of 2.2% in the April-June quarter after declining at a 0.5% pace in the first quarter of the year. That's up from an initial estimate of a 1.6% gain. Labor costs rose at an annual rate of 1.5%, slightly lower than the 1.7% initially estimated. The government said the economy grew at an annual rate of 1.7% in the April-June quarter, up slightly from an initial estimate of 1.5%. The increase led to higher productivity gains.
There are limits to how much companies can squeeze from workers. When that happens, productivity begins to slow and companies usually hire more workers to keep pace with demand.
One reason productivity improved in the second quarter is hiring slowed to just 75,000 jobs a month from April through June. That's down from an average of 226,000 a month in the first quarter.
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%. Hiring probably won't accelerate from that level unless economic growth picks up or productivity slows, economists say.
The government will release the August employment report on Friday. Economists forecast that the economy added 135,000 jobs last month, and the unemployment rate stayed at 8.3%.
Economists said they expect 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 1% or less in 2013.
Peter Newland, senior economist at Barclays, said productivity should slow as companies increase hiring in coming months.
The Federal Reserve closely follows changes in productivity and labor costs to make sure that inflation pressures are not building. That doesn't seem to be much of a worry in the near term.
Over the past year, productivity has risen 1.2%. That is far below the 3% rise in the average productivity rate in 2009 and 2010. Those gains were mostly due to massive job layoffs during the recession as companies slashed costs to compensate for falling demand.
Economists said higher productivity is typical during and after a recession. Companies tend to shed workers in the face of falling demand and increase output from a smaller work force. Once the economy starts to grow, demand rises and companies eventually must add workers if they want to keep up.
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