Companies squeeze more work out of reduced staffs

— -- Jobless rolls have hit record levels this recession. The economy has been shrinking. But U.S. companies are doing better than you might think.

That reality will likely be underscored Tuesday when the Labor Department is expected to report a 5.5% jump in productivity in the second quarter from the first, according to consensus estimates. That would be the biggest jump since the third quarter of 2007.

In other words, companies have taken advantage of their slimmed-down workforces by wringing more out of each employee. That's bad news for the jobless but should better position employers to hire again when demand returns, economists say.

The productivity surge is unusual. Productivity — the economy's output per hour of labor — typically falls in downturns because employers are reluctant to cut workers when sales start slipping. Layoffs are costly and the economy could rebound quickly, forcing firms to hire back workers they just let go.

This time, however, companies slashed jobs in anticipation of falling demand and then kept cutting feverishly, says John Ryding of RDQ Economics.

"Companies made a very aggressive move shaking out labor," Ryding says.

The 9.4% unemployment rate in July was virtually unchanged from June as companies shed a fewer-than-expected 247,000 jobs. Employers also have been trimming hours of existing employees.

In a shrinking economy, the assertive cuts have buoyed productivity since the recession's start in December 2007. It rose at an average annualized rate of 3.1% the first three quarters of 2008 and 1.6% in the first quarter of 2009, according to High Frequency Economics and BLS.

By comparison, productivity declined 1.3% in the first three quarters of the early 1980s recession and 0.1% during the 1990-91 slump.

Employers also quickly shed workers as the economy stumbled in the 2001 recession. Productivity grew at an average 4.5% clip the last three quarters of 2001.