Companies squeeze a lot more work out of smaller 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.
The Labor Department said Tuesday that non-farm productivity rose at a 6.4% annual rate in the second quarter, much more than expected and the biggest gain since the third quarter 2003.
Economists expected a 5.5% jump.
The report said hours worked plunged at a 7.6% rate in the second quarter.
And unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, fell 5.8%, biggest decline since the second quarter 2000. Analysts had expected unit labor costs to fall 2.4% in the second quarter. Unit labor costs dropped a revised 2.7% in the January-March quarter.
The productivity number shows that 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.
