Bloomberg News

Productivity in U.S. Rises as Companies Try to Lower Costs (2)

June 05, 2013

Productivity in U.S. Rises as Companies Try to Lower Costs

An employee checks the wheel frame of a bicycle at the Shinola production facility in Detroit, Michigan. Photographer: Jeff Kowalsky/Bloomberg

The productivity of U.S. workers rose in the first quarter as companies tried to contain labor costs.

The measure of employee output per hour increased at a 0.5 percent annual rate, after a 1.7 percent drop in the prior three months, revised figures from the Labor Department showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.6 percent advance. Expenses per worker slumped at a 4.3 percent rate after surging in the last three months of 2012 by the most in more than a decade.

Even with the pickup last quarter, productivity grew 0.9 percent in the 12 months ended March compared an average 2.3 percent annual gain in the 11 years through 2011, indicating companies are reaching the limit of how much efficiency they can wring from existing staff. For that reason, employment probably climbed last month at about the same pace as in April even as the economy shows signs of cooling.

“Productivity is coming in a little on the weaker side,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, and the only economist in the Bloomberg survey to correctly forecast the productivity gain. “Outside of the fiscal drag, we’re getting decent private sector demand. Companies will continue to hire at a solid pace.”

Economists’ estimates ranged from gains of 0.1 percent to 1 percent. The reading on productivity was revised from a previously reported 0.7 percent gain. The figure for the fourth quarter was unrevised.

Private Employment

Another report today showed companies added fewer workers than forecast in May. Private employment rose 135,000 after a revised 113,000 gain in April that was smaller than initially estimated, the ADP Research Institute reported. The median forecast in a Bloomberg survey called for a 165,000 increase in May.

Stock-index futures remained lower after the figures. The contract on the Standard & Poor’s 500 Index expiring this month fell 0.3 percent to 1,626.2 at 9:25 a.m. in New York.

The drop in labor expenses in the first quarter was the biggest in four years and was revised from a 0.5 percent gain previously reported. It followed a revised 11.8 percent surge in the last three months of 2012 that was the biggest jump since the first quarter of 2000.

The cost revisions reflect the income updates from the Commerce Department’s gross domestic product figures released last week. The surge in income in the fourth quarter reflects early payouts of dividends and bonuses as companies tried to beat tax increases set to take effect this year.

Labor Costs

Unit labor costs, which are adjusted for efficiency gains, were forecast to rise 0.5 percent, the survey median showed.

Among manufacturers, productivity increased at a 3.5 percent rate compared with a 2.4 percent fourth-quarter gain.

Home Depot Inc. (HD:US), the largest U.S. home-improvement chain, is among companies trying to squeeze more productivity and contain costs, in part by rearranging labor hours. The Atlanta-based retailer eliminated or switched some tasks, putting the freed-up hours toward customer service.

Payrolls probably grew by 167,000 workers in May, after increasing by 165,000 in April, according to the median forecast of economists surveyed by Bloomberg ahead of payrolls figures due on June 5. The unemployment rate held at a four-year low of 7.5 percent, they predicted.

A slowing economy may prevent the jobless rate from retreating enough for the Federal Reserve to scale back stimulus any time soon.

The U.S., which expanded at a 2.4 percent annualized rate in the January to March period, may cool this quarter to a 1.6 percent annualized rate as across-the-board cuts in planned federal spending occur, according to the median forecast in a separate Bloomberg survey conducted in May. Growth is projected to accelerate in the last six months of this year.

To contact the reporter on this story: Shobhana Chandra in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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