Productivity in U.S. Rises as Companies Try to Cut Labor Costs

The productivity of U.S. workers rose in the first quarter as companies focused on containing labor expenses.

The measure of employee output per hour increased at a 0.7 percent annual rate, after dropping 1.7 percent 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 1 percent advance. Expenses per worker increased at a 0.5 percent rate after jumping 4.4 percent.

Employers tried to control expenses by making do with their existing staff as demand grew in the January to March period. The emphasis on wringing efficiency gains may mean hiring will take time to accelerate, particularly as across-the board federal budget cutbacks and higher payroll taxes restrain the world’s largest economy.

“Businesses are struggling to raise productivity,” Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, said before the report. “Companies are struggling to increase profits as well. Employment has taken a downshift. The second half is going to be better for employment.”

Estimates of the 51 economists surveyed ranged from a decline of 1 percent to a 2.8 percent gain.

The drop in fourth-quarter productivity was revised from a previously reported 1.9 percent decrease.

Another report from the Labor Department showed the number of Americans filing claims for jobless benefits unexpectedly dropped last week to the lowest level in more than five years, indicating companies are retaining staff even as the economy cools.

Jobless Claims

Applications for unemployment insurance payments fell 18,000 to 324,000 in the week ended April 27, the fewest since January 2008. Economists forecast 345,000 claims, according to the median estimate in a Bloomberg survey. A Labor Department official said there was nothing unusual in the data.

Unit labor costs, which are adjusted for efficiency gains, were forecast to rise 0.7 percent, the survey median showed.

Productivity climbed 0.9 percent from the first quarter of 2012. That compares with an average gain of 2.3 percent from 2000 through 2011.

Labor costs increased 0.6 percent year-over-year in the first quarter, down from a 2 percent gain in the previous three months.

Among manufacturers, productivity jumped at a 3.8 percent rate in the first quarter.

Growth Pickup

Gross domestic product grew at a 2.5 percent annualized pace in the first three months of 2013, up from a 0.4 percent rate from October to December. Growth may weaken this quarter, in part due to the lagged effect of a two percentage-point rise in the payroll tax at the start of 2013 and $85 billion in automatic budget cuts that began March 1.

The economy will slow to a 1.5 percent pace of expansion from April through June, then reaccelerate to an average 2.4 percent rate in the last six months of the year, according to an April survey by Bloomberg.

“Fiscal policy is restraining economic growth,” Federal Reserve policy makers said in a statement yesterday after meeting in Washington. While the economy has been expanding at a “moderate pace,” they said, “the unemployment rate remains elevated.”

The central bank said it will maintain bond buying at a rate of $85 billion a month and is “prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation.”

Payroll Forecast

Employers probably hired 145,000 workers in April after taking on 88,000 in March, and the unemployment rate held at a four-year low of 7.6 percent, according to the median forecast in a Bloomberg survey ahead of payrolls figures due tomorrow.

Job gains averaged 168,000 a month in the first quarter, after a 208,000 average for the final three months of 2012.

3M Co., the maker of products ranging from Scotch tape to dental braces, is among companies trying to wring out more productivity by controlling expenses. The St. Paul, Minnesota-based company cut its annual earnings forecast after quarterly profit trailed estimates amid a slowing global economy.

“We’ve been managing costs quite cautiously through last year, through the first quarter,” David Meline, chief financial officer, said in an April 25 earnings call. “We’re in a position now where we’ll continue to do that until such time that we see our growth picking up more strongly, which would support incremental investments in certain areas.”

Before it's here, it's on the Bloomberg Terminal.