Productivity in U.S. Rises Above Forecast as Output Grows

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A technician inspects the pylon of an Embraer SA Phenom 300 Light business jet at the company's executive jet manufacturing facility in Melbourne, Florida, on July 15, 2013. Close

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Photographer: Mark Elias/Bloomberg

A technician inspects the pylon of an Embraer SA Phenom 300 Light business jet at the company's executive jet manufacturing facility in Melbourne, Florida, on July 15, 2013.

The productivity of U.S. workers rose more than projected in the second quarter as the world’s largest economy expanded.

The measure of employee output per hour increased at a 0.9 percent annualized rate, after a 1.7 percent decline in the prior three months, a Labor Department report showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.6 percent advance. Expenses per worker rose at a 1.4 percent rate, greater than estimated.

Even with the second-quarter pickup, productivity was unchanged in the 12 months ended in June, below the average 2.4 percent annual gain in the 2000-2011 period, the report showed. Businesses are reaching the limit of how much efficiency they can squeeze from their existing staff, a sign they may take on more workers once they see faster sales.

“Productivity is growing at an extremely slow pace,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, who projected a 0.8 percent increase. “We’re in an environment where businesses are finding it very difficult to eke out more from the labor they employ. We could see more hiring, but the bad news is, if you’re a worker, you’re seeing your paycheck barely go up.”

Photographer: T.J. Kirkpatrick/Bloomberg

Businesses are reaching the limit of how much efficiency they can squeeze from their existing staff, a sign they may take on more workers once they see faster sales. Close

Businesses are reaching the limit of how much efficiency they can squeeze from their... Read More

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Photographer: T.J. Kirkpatrick/Bloomberg

Businesses are reaching the limit of how much efficiency they can squeeze from their existing staff, a sign they may take on more workers once they see faster sales.

Housing Starts

Separate figures today from the Commerce Department showed housing starts climbed 5.9 percent in July to an 896,000 annualized rate from a revised 846,000 pace the prior month that was higher than previously reported.

Stock-index futures held earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing in September climbed 0.2 percent to 1,659.4 at 8:33 a.m. in New York.

The estimates of 57 economists surveyed by Bloomberg ranged from a productivity decline of 2.5 percent to a gain of 2.3 percent.

Output climbed 2.6 percent in the second quarter, and was revised down to a 0.3 percent decline in the first quarter.

Labor expenses dropped 4.2 percent in the first quarter, compared with 4.3 percent decline previously estimated.

Unit labor costs, which are adjusted for efficiency gains, were forecast to rise 1.2 percent, the Bloomberg survey median showed.

Adjusted for inflation, hourly earnings rose at a 2.3 percent rate in the second quarter, after plunging 7.3 percent in the prior quarter.

Hours worked rose at a 1.7 percent pace in the second quarter, and compensation for each hour worked climbed at a 2.3 percent annual pace.

Manufacturer Productivity

Among manufacturers, productivity increased at a 2.7 percent rate, slower than the prior quarter.

Agilent Technologies Inc. (A), the Santa Clara, California-based maker of biological- and chemical-testing products and systems, is among companies trying to improve its manufacturing efficiency and limit costs through steps such as consolidating programs.

“We’re doing a real effective job of taking millions of dollars out of the system,” Ronald Nersesian, chief operating officer, said on an earnings conference call on Aug. 14. “We saw over $50 million worth of cost reductions last year. Roughly that same amount this year, and then more coming after that.”

The job market continues to make uneven progress. Payrolls grew by 162,000 workers in July, after a 188,000 increase in June, the Labor Department reported on Aug. 2. The unemployment rate dropped to a more then four-year low of 7.4 percent.

The U.S. expanded at a 1.7 percent annualized rate in the second quarter after a 1.1 percent pace in the January to March period. It may grow at a 2.3 percent rate this quarter as the effect of across-the-board cuts in federal spending and higher taxes fades, according to the median forecast in a separate Bloomberg survey conducted Aug. 2 to Aug. 6.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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