Bloomberg News

Productivity in U.S. Grows More Than Previously Estimated

September 05, 2012

Productivity in U.S. Grew More Than Forecast

A welder works on oil tank tops at Westerman Companies Inc., in Bremen, Ohio. Photographer: Ty Wright/Bloomberg

The productivity of U.S. workers rebounded more than initially estimated in the second quarter as employers tried to protect profits.

The measure of employee output per hour climbed at a 2.2 percent annual rate, after a 0.5 percent drop in the prior three months, revised figures from the Labor Department showed today in Washington. The median forecast of 59 economists surveyed by Bloomberg called for a 1.8 percent increase. Expenses per worker climbed at a 1.5 percent rate, less than previously estimated.

The biggest gains in productivity during the current expansion have probably already occurred as companies find they need to boost staff to further increase output and as investment in new equipment cools. At the same time, a weakening global economy is already hurting earnings, indicating businesses will continue to look for ways to operate more efficiently.

“Companies did a good job on productivity during the crisis, and they will continue to try to increase productivity to boost profits, but it’s not so easy to do that from here,” said Harm Bandholz, chief economist at UniCredit Group in New York. “Investment spending in the U.S. has been lackluster, and it’s certainly not getting better. The potential for increasing profits by cutting costs has come down quite a bit.”

Stock-index futures trimmed earlier losses after the report. The contract on the Standard & Poors’ 500 Index maturing this month fell 0.2 percent to 1,403.7 at 8:45 a.m. in New York.

Survey Results

Estimates for productivity in the Bloomberg survey ranged from gains of 1.6 percent to 2.4 percent. The second-quarter gain was initially estimated as a 1.6 percent annual rate, a report last month showed.

Unit labor costs, which are adjusted for productivity gains, were forecast to advance 1.4 percent in the April to June period, the survey median showed.

The increase in unit labor costs in the first quarter was revised up to a 6.4 percent annual pace from a prior estimate of 5.6 percent.

Today’s revision to labor expenses reflected updated figures on worker pay. Wages and salaries rose by $56.1 billion in the second quarter, more than previously reported, according to Commerce Department figures released Aug. 29.

Output rose at a 2.4 percent rate, following a 2.7 percent gain in the prior quarter, today’s revised figures showed.

Hours worked climbed at a 0.1 percent pace, the smallest increase in almost three years. Compensation for each hour worked climbed at 3.7 percent annual pace.

Compensation Gains

Adjusted for inflation, compensation advanced at a 2.9 percent pace last quarter, following a 3.3 percent gain in the prior quarter.

Among manufacturers, productivity increased at a 0.1 percent rate.

The U.S. economy cooled last quarter as sluggish job growth prompted Americans to curb spending. Gross domestic product rose at a 1.7 percent annual rate from April through June, down from a 2 percent gain in the first quarter and 4.1 percent in the final three months of 2011, Commerce Department data show.

Earnings growth last quarter also failed to reverse the prior three months’ decline. Before-tax profit at U.S. corporations increased 0.5 percent in the second quarter after a 2.7 percent drop in the prior three months. Earnings climbed 6.1 percent from a year earlier, slower than the pace of the previous two quarters.

To combat the slip in profits, business limited hiring, squeezing more out of existing staff instead. Payrolls increased by 219,000 workers from April through June, less than half the 677,000-pace in the prior quarter.

‘Uncertain’ Environment

“As we head into the much larger second half of the year, we are mindful that the macro environment remains pressured and uncertain,” Harlan Kent, chief executive officer of Yankee Candle Co. Inc., said on an Aug. 9 conference call. “Against this backdrop, we will need to remain focused on flawless execution, continue to drive operating efficiencies and productivity.”

Productivity improvements may be harder to come by without the support of new technology. Corporate spending on equipment and software rose at a 4.7 percent pace last quarter, the weakest since the third quarter of 2009, according to Commerce Department figures.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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


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