AP News

Ahead of the Bell: US productivity

WASHINGTON (AP) — U.S. workers were likely more productive this spring than initially thought. Still, productivity has increased at a relatively weak pace, a signal that companies may need to hire more to meet rising demand.

Economists expected productivity increased at an annual rate of 1.8 percent in April-June quarter, according to a survey by FactSet. That would be a slight improvement from last month's first estimate of 1.6 percent.

Labor costs are expected to have risen at annual rate of 1.5 percent, slightly less than first estimated.

The Labor Department will release the second and final estimate for second-quarter productivity and labor costs at 8:30 a.m. Eastern time on Wednesday.

The government said the economy grew at an annual rate of 1.7 percent in the April-June quarter, up slightly from an initial estimate of 1.5 percent. Based on that change, economists believe productivity will be revised up slightly.

Productivity is the amount of output per hour worked. 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 company typically must hire more workers to keep pace with demand.

Productivity declined 0.5 percent in the January-March quarter. 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 percent. Hiring probably won't accelerate from that level unless growth picks up or productivity slows, economists say.

The Federal Reserve closely follows changes in productivity and labor costs to make sure that inflation pressures are not getting out of control.

Productivity grew only 0.7 percent last year after rising sharply in 2010. The main reason productivity soared in 2010 was that it followed the worst recession in decades, when employers laid off millions of workers.

Economists said the trend 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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