U.S. productivity drops 0.5% in first quarter
Friday, 04 May 2012 | 00:00
U.S. productivity fell in the January-to-March period for the first time in three quarters, but it declined at a slower rate than expected because of the resurgent manufacturing sector.
The Labor Department estimated productivity fell at an annual rate of 0.5% in the first quarter, down from a revised gain of 1.2% in the fourth quarter. The fourth-quarter increase was previously reported as 0.9%.
Economists surveyed by MarketWatch had been looking for first-quarter productivity to fall by 1.0% on a seasonally adjusted basis.
All of the decline took place outside the manufacturing sector. Manufacturers, which have led the recovery since the U.S. exited recession in 2009, boosted productivity by 5.9%, as output jumped 10.8% and hours worked increased by 4.6%. Much of the gain likely stemmed from a big pickup in auto sales.
The amount of goods and services produced, known as real output, grew 2.7%. Yet hours worked rose a faster 3.2%, reflecting a big uptick in hiring during the quarter.
“In hiring more employees to keep output growth steady, firms have seen their costs increase at the expense of profit,” said economist Erik Johnson of IHS Global Insight.
Unit-labor costs climbed 2.0% in the quarter, but that was slower than the 2.7% increase in the prior quarter. Unit-labor costs reflect how much it costs a business to produce one unit of output, such as a ton of steel or a crate of dry goods.
Hourly wages rose 1.5%, but after factoring in inflation, workers actually lost ground. Real hourly earnings dropped 0.9% in the first quarter.
Falling real income lowers the standard of living, giving consumers less to spend and making it harder to save. That bodes ill for the economy because consumer spending accounts for up to 70% of U.S. economic activity.
Inflation-adjusted income has fallen a smaller 0.2% over the past year, however.
Higher productivity is seen as the key to a rising standard of living, because it tends to lead to higher pay for workers and larger profits for companies.
Declining productivity at a time when an economy is growing is often a signal companies need to hire more workers. Otherwise, rising demand would eventually outstrip the ability of the existing workforce to keep up.
Alternatively, lower productivity can be evidence of a poorly performing economy.
Yet productivity data are subject to large revisions, and economists say it often takes several quarters to establish a trend.
Looked at that way, productivity has risen at a slow 0.5% pace over the past four quarters, suggesting companies can no longer boost efficiency by cutting jobs or requiring current workers to do even more.
Productivity rose sharply after the 2008-2009 recession mainly because companies slashed their workforces while increasing output of goods and services.
Productivity data are revised twice each quarter.
The Labor Department also reported a drop in initial jobless claims.
The Institute for Supply Management reported slowing growth in the services sector.
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