Home / Africa/International / US productivity rises

US productivity rises

Share this with more people!

U.S. output per worker rose at its fastest pace in six years during the second quarter as businesses wrung more from shrinking staff in a sign that recovery from recession will be slow and unlikely to create a surge in hiring.

A Labor Department report on Tuesday showed nonfarm productivity, a gauge of hourly output per worker, jumped at a 6.4 percent annual rate, the sharpest since the third quarter of 2003 after a 0.3 percent gain in the January-March quarter.

“The bounce in productivity is another indication that the nasty U.S. recession is drawing to a close. The bad news is, however, that firms are still reluctant to hire,” said Harm Bandholz, an economist at UniCredit Markets and Investment Banking in New York.

A separate government report showed U.S. wholesalers cut their inventories of unsold goods for a 10th straight month in July as businesses continued running as lean as possible in the face of uncertainty about how durable a recovery will be.

U.S. stocks added to losses after the wholesale data and U.S. Treasury debt prices posted session highs as investors worried businesses were cutting inventories sharply because they remained skeptical about a return in demand.

Nonfarm productivity is generally viewed as a measure of overall business health with a higher reading taken as an indication of efficient use of employees and capital and of success in keeping costs contained.

The productivity data is likely to be reassuring for the Federal Reserve, as it indicates inflation remains muted.

The U.S. central bank is set to start a regular two-day meeting on Tuesday and is widely expected to leave overnight lending rates unchanged near zero.

“It gives the Fed more room to keep rates lower for longer in order to move the economy as quickly as possible through the recovery phase to an expansion mode,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight, in Lexington Massachusetts.

The worst economic downturn in over 60-years has forced companies to aggressively cut costs — mostly their workforce — to shield profits from further erosion. Since the start of recession in December 2007, about 6.7 million workers have been laid off, according to the latest government statistics.

DEEPER COST CUTS

Analysts said the surge in productivity helped to explain better-than-expected earnings from some companies, despite weak demand across all sectors of the economy.

Deeper cost cuts, including layoffs and plant closures, have helped companies such as Caterpillar Inc and 3M Co to post better-than-expected second-quarter results.

Companies are also slashing jobs as they work through huge stocks of unsold goods. The Commerce Department reported that stocks at U.S. wholesalers plummeted 1.7 percent in June, the tenth straight monthly drop, which drove inventories to their lowest level in more than two years.

The inventory-to-sales ratio fell to 1.26 months’ worth from May’s 1.28 months, the lowest ratio since October.

“It does help set the stage for inventory rebuilding in the third quarter, which will help economic growth,” said Jessica Hoversen, fixed income market analyst at MF Global Research in Chicago.

According to the productivity report, hours worked plunged at a 7.6 percent rate in the second quarter, while output fell 1.7 percent.

In a sign that the inflation pressures remained benign and deflation was a threat, unit labor costs fell 5.8 percent, the biggest decline since the second quarter of 2000, after dropping a revised 2.7 percent in the January-March quarter.

Unit labor costs are closely watched by the Fed for hints of inflation. Compensation per hour rose at a 0.2 percent pace, but adjusted for inflation, it was down 1.1 percent.

“We suspect that the decline in wage costs will lead to a decline in prices, which is exactly the sort of downward wage-price spiral the Fed will be desperate to avoid,” said Paul Ashworth, a senior U.S. economist at Capital Economics in Toronto.

“The economy may be tentatively emerging from recession, but the threat of deflation will remain for some time.”

Compared with the April-June quarter of 2008, non-farm productivity was up 1.8 percent. Unit labor costs fell 0.6 percent year-on-year. Compensation from a year earlier rose 1.3 percent and was up 2.2 percent once adjusted for inflation.

Output, measured on a year-on-year basis, was down 5.6 percent.

Source: Reuters

Share this with more people!

Check Also

UNAIDS, Samba Peuzzi raise alarm on HIV among children in West and Central Africa

As part of a new campaign to stop new HIV infections among children and ensure …