U.S. Worker Productivity Climbs

Pace picks up in 3Q for the first time this year.

The productivity of U.S. workers rose in the third quarter for the first time this year as companies tried to cut costs following a slowdown in growth.

The measure of employee output per hour increased at a 3.1 percent annual rate, following declines in each of the previous two quarters, figures from the Labor Department showed today in Washington. Expenses per employee fell at a 2.4 percent rate after a 2.8 percent gain in the second quarter.

Employers sought to cut costs by keeping payrolls down and squeezing more output from existing staff. Lower labor expenses, which account for about two-thirds of the cost of producing a good or service, may help hold down inflation, giving Federal Reserve leeway to take additional steps if needed to spur the world’s largest economy.

“The bigger-than-expected drop in unit labor costs temporarily arrests the upward move in compensation, which is very positive for profit margins,” said Eric Green, chief market economist at TD Securities Inc. in New York. The reversal in labor costs “suggests there is more room as opposed to less room for profit expansion and corporate profitability.”

Third-quarter productivity was projected to rise 3 percent, according to the median forecast of 63 economists surveyed by Bloomberg News. Estimates ranged from gains of 1.2 percent to 4.3 percent. Last quarter’s gain was the biggest since the first three months of 2010.

Efficiency in the second quarter decreased at a 0.1 percent pace following a 0.6 percent decline in the first quarter, marking the first back-to-back drop since the third and fourth quarters of 2008.

Unit labor costs, which are adjusted for efficiency gains, were forecast to fall 1 percent, the survey median showed.

The bigger-than-projected drop in labor expenses showed companies were holding the line on worker pay. Hourly compensation rose at a 0.6 percent pace in the third quarter. After adjusting for inflation, it dropped at a 2.4 percent rate, the biggest decrease since the third quarter of 2008.

Fewer Americans filed applications for unemployment benefits last week, signaling limited progress in the labor market, another report today from the Labor Department showed.

Jobless claims fell by 9,000 to 397,000 in the week ended Oct. 29, the fewest in a month. The median forecast of 49 economists in a Bloomberg News survey called for a drop to 400,000. The total number of people on unemployment benefit rolls decreased to a six-month low.

Stock-index futures extended gains and Treasuries fell after the reports. The contract on the Standard & Poor’s 500 Index expiring next month climbed 1.2 percent to 1,249.1 at 8:48 a.m. in New York. The yield on the benchmark 10-year note rose to 2.06 percent from 1.99 percent late yesterday.

Compared with the third quarter of 2010, productivity increased 1.1 percent. Labor costs climbed 1.2 percent from the year-earlier period, down from a 1.8 percent gain in the prior 12 months.

Labor costs dropped 2 percent in 2010, the biggest decrease since data began in 1948.

Among manufacturers, productivity increased at a 5.4 percent rate in the third quarter. Unit labor costs for factories dropped at a 4.6 percent annual rate last quarter.

Companies are keeping a tight rein on hiring amid concern the European debt crisis will restrain global growth. The economy generated 95,000 payrolls in October, down from 103,000 the prior month, economists surveyed by Bloomberg forecast the Labor Department will report tomorrow. Unemployment was 9.1 percent for a fourth month, according to the forecasts.

Benton Harbor, Michigan-based Whirlpool Corp., the world’s largest maker of household appliances, last week said it will cut more than 5,000 jobs and reduce capacity by six million units after lowering its earnings targets as consumers rein in spending. Whirlpool said reductions in Europe and North America account for about 10 percent of all employees in those regions.

“Our results were negatively impacted by recessionary demand levels in developed countries, a slowdown in emerging markets and high levels of inflation in material costs,” Chief Executive Officer Jeff M. Fettig said in the statement.

Gross domestic product in the U.S. expanded at a 2.5 percent annual pace from July through September, up from a 1.3 percent prior estimate, the Commerce Department reported last week. That followed 0.4 percent growth in the first three months of this year that was the weakest since the second quarter of 2009, during the recession.

Fed officials lowered their outlook for U.S. economic growth in 2012 and forecast that unemployment will average from 8.5 percent to 8.7 percent in the final three months of next year. The forecasts were released after the Federal Open Market Committee yesterday acknowledged economic growth “strengthened somewhat” in the third quarter while also citing “continuing weakness” in labor markets and “significant downside risks” to the economic outlook.

The productivity surge that helped boost U.S. economic growth since 1997 has probably ended, according to a researcher at the Federal Reserve Bank of New York.

There is a 90 percent chance gains in worker output per hour have fallen to levels consistent with the quarter-century of slow growth that spanned 1973 to 1997, New York Fed economist Robert Rich wrote in a report in September on the bank’s Liberty Street Economics blog.




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