Bloomberg News

U.S. Productivity Falls, Labor Costs Rise Less Than Forecast

May 03, 2012

Employers had to take on more staff at the start of the year even as growth slowed, signaling they can no longer count on existing staff to meet demand. Photographer: Davis Turner/Bloomberg

Employers had to take on more staff at the start of the year even as growth slowed, signaling they can no longer count on existing staff to meet demand. Photographer: Davis Turner/Bloomberg

The productivity of U.S. workers fell in the first quarter, indicating businesses are reaching the limit of how much efficiency they can wring from the workforce.

The measure of employee output per hour declined at a 0.5 percent annual rate after a 1.2 percent gain in the prior three months, figures from the Labor Department showed today in Washington. Expenses per worker increased at a 2 percent rate, less than estimated.

Employers had to take on more staff at the start of the year even as growth slowed, signaling they can no longer count on existing staff to meet demand. A government report tomorrow may show payrolls increased again in April, according to the median forecast of economists surveyed by Bloomberg News.

“This slowdown in productivity is a positive omen for the labor market,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in a research note. He correctly projected the drop in productivity. “It suggests that additional increases in output will necessitate a faster pace of hiring than what has occurred thus far.”

The median forecast in a Bloomberg News survey of 60 economists called for a 0.6 percent drop in productivity. Estimates ranged from a 1.5 percent decline to a 0.5 percent gain.

The decrease last quarter followed a 0.4 percent gain for all of 2011, the smallest advance since 1995.

Labor expenses, which are adjusted for efficiency gains, were forecast to rise 2.7 percent, the survey median showed.

Claims Drop

Fewer Americans than forecast filed applications for unemployment benefits last week, easing concern the job market was taking a turn for the worse, another report from the Labor Department showed today. Jobless claims fell by 27,000 to 365,000 in the week ended April 28, a one-month low, from a revised 392,000 the prior period. The median forecast of 46 economists surveyed by Bloomberg called for 379,000.

Stock-index futures rose after the labor market data, with the contract on the Standard & Poor’s 500 Index expiring in June rising 0.1 percent to 1,399.2 at 9:21 a.m. in New York.

Employers are keeping a lid on wages even as the job market improves, today’s report showed, underscoring concern among some Federal Reserve policy makers that job-market slack will suppress income gains.

Hourly pay climbed at a 1.5 percent annual rate last quarter, down from a 3.9 percent increase in the prior three months, today’s report showed. Adjusted for inflation, hourly earnings dropped at a 0.9 percent annual rate after increasing in the prior two quarters.

Inflation may remain around the central bank’s goal of 2 percent as labor costs are “muted” given the high unemployment rate, Federal Reserve Bank of San Francisco President John Williams said May 1 on a panel in Beverly Hills, California.

Fed Concern

Fed officials, concerned about elevated unemployment, last month repeated their plan to hold borrowing costs low through late 2014 to spur growth.

United Parcel Service Inc. (UPS:US), the world’s largest package- delivery company, is among firms trying to control employee expenses. UPS, which reported a gain in first-quarter profit and reiterated its 2012 earnings forecast, is benefiting from productivity gains and “greater economies of scale,” Chief Financial Officer Kurt Kuehn said.

“Our hours, our miles and those things are just barely up for the quarter even though we showed some of the strongest volume growth you’ve seen in some time,” Kuehn said on an April 26 conference call with analysts. “So we are able to process this volume very efficiently and the incremental impact on expense and capital is very minimal.”

Factory Productivity

Among manufacturers, productivity jumped at a 5.9 percent rate, the biggest gain in almost two years, after increasing at a 0.6 percent rate in the last three months of 2011.

Gross domestic product climbed at a 2.2 percent annual rate in the first quarter after a 3 percent pace in the previous three months, Commerce Department data showed last week.

Hiring is improving. Payrolls rose by 160,000 in April after a 120,000 gain in March, according to the Bloomberg survey median ahead of a report due tomorrow. The jobless rate probably held at 8.2 percent, economists predicted.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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