Productivity in U.S. Rebounds as Employers Try to Curb Costs

The productivity of U.S. workers rebounded in the second quarter as employers sought to protect earnings by squeezing more out of existing staff.

The measure of worker output per hour increased at a 1.6 percent annual rate following a revised 0.5 percent drop in the prior three months, figures from the Labor Department showed today in Washington. Expenses per employee climbed at a 1.7 percent rate after surging a revised 5.6 percent.

The drop in productivity at the start of 2012, pared with a slowdown in profits, may be prompting companies to focus on enhancing efficiency to curb costs, making a pickup in employment more difficult to spur. A jobless rate that has held above 8 percent for more than three years is among reasons Federal Reserve policy makers said they are ready to take additional action if needed.

“Firms are going to be a lot more cautious in terms of how they increase spending,” said Michael Hanson, a senior U.S. economist at Bank of America Corp. in New York, who correctly forecast the gain in productivity. “Productivity is going to hang in there. There is no doubt that the hiring environment is much more challenging.”

Stocks dropped, snapping a three-day advance by the Standard & Poor’s 500 Index, amid disappointing revenue reports. The S&P 500 fell 0.3 percent to 1,396.67 at 9:38 a.m. in New York. Almost 59 percent of S&P 500 companies which reported second-quarter sales have missed analysts’ estimates, Bloomberg data showed.

Survey Results

Second-quarter productivity was projected to rise 1.4 percent, according to the median forecast of 59 economists surveyed by Bloomberg News. Estimates ranged from gains of 0.9 percent to 2.9 percent.

Unit labor costs, which reflect changes in efficiency, were forecast to increase 0.5 percent, the survey median showed. The revised first-quarter jump was more than four times larger than the 1.3 percent advance previously reported, reflecting income revisions issued by the Commerce Department last month.

Productivity was up 1.1 percent compared with the second quarter of 2011. Labor costs rose 0.8 percent from a year- earlier.

Among manufacturers, productivity increased at a 0.2 percent rate last quarter, and was up 2.9 percent over the past 12 months.

Growth Slows

The U.S. economy cooled in the second quarter as limited job growth prompted Americans to curb spending. The nation’s gross domestic product expanded at a 1.5 percent annual pace from April to June, down from a 2 percent gain in the first quarter, Commerce Department figures showed July 27.

Amid the slowdown, earnings also cooled. Corporate profits dropped 2.7 percent in the first quarter from the prior three months, the first decrease in a year, Commerce Department data show.

“We believe there is more emphasis on productivity and cost reduction in a slowing economy than there obviously is in capacity expansion,” Keith Nosbusch, chairman and chief executive officer of Rockwell Automation Inc. (ROK), which makes factory automation software, said during a July 25 earnings call. “We’ve been very successful in both the U.S. and Western Europe, two mature markets that require ongoing cost reductions, ongoing productivity improvements.”

Focusing on efficiency may, in turn, make businesses more reluctant to take on new employees after hiring jumped at the beginning of 2012. Payrolls increased by 677,000 workers from January through March. They grew by less than half as much in the second quarter, expanding by 219,000 employees.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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