Quarterly rise in output not all good

WASHINGTON -- Productivity, the key ingredient needed for rising living standards, rose at a sizzling annual rate of 6.4% in the April-June quarter, the Labor Department reported Tuesday.

In the worst recession in generations, that gain was a decidedly mixed blessing.

It was good news for companies struggling to control labor costs and survive, but hard on the workers who got laid off or saw their hours trimmed.

Here are some questions and answers about what the productivity report says about where the economy is heading.

Q: Isn't a big jump in productivity cause for celebration?

A: When the economy is growing and unemployment is falling, the answer is a definite yes. But now, it's more complicated. Productivity is a measure of the amount of output per hour of work. In good times, workers become more productive as they gain experience and produce more goods and services for every hour they work. That allows businesses to pay workers more because the companies are producing more with the same number of workers. That improves living standards.

The latest rise in productivity, though, came about through severe cost-cutting: Companies laid off workers and reduced hours for those remaining. In the April-to-June period, the total number of hours worked at non-farm businesses fell at an annual rate of 7.6%. Output was also down, but only at a 1.7% rate. The combination resulted in productivity rising at an annual rate of 6.4%.

Q: Is there anything good about the productivity jump?

A: Businesses were helped, even though workers weren't. The hope is that leaner companies will be in a better position financially to start hiring back workers once the economy starts to rebound and demand for their products picks up.

But the unemployment rate probably will not peak until topping 10% sometime next spring.

Q: And then what?

A: Economists believe that by then, businesses will have stopped laying off workers and will begin sustained rehiring as they see their sales pick up.