Productivity Picks Up as U.S. Companies Cut Labor Costs
The productivity of U.S. workers expanded more than previously estimated in the third quarter as companies cut labor expenses to preserve profits.
The measure of employee output per hour climbed at a 2.9 percent annual rate, the biggest gain in two years and up from 1.9 percent in the prior three months, revised Labor Department figures showed today in Washington. The median forecast in a Bloomberg survey of 58 economists called for a 2.8 percent rise. Costs per worker fell at a 1.9 percent rate, more than previously estimated.
Concern about slowing global demand and the looming fiscal tightening signals companies may restrain hiring and keep a lid on wages until sales accelerate. The decline in labor costs indicates inflation will remain subdued, giving Federal Reserve policy makers room to keep pumping money into the economy to spur growth.
“The productivity gains should help companies’ profit margins,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, who accurately forecast the decline in labor costs. “There’s going to be continued downward pressure on labor costs given the high rate of unemployment.”
Another report today showed companies added fewer workers in November than a month earlier after superstorm Sandy battered the East Coast and temporarily shuttered some businesses. An 118,000 increase in employment followed a revised 157,000 gain in October that was smaller than initially estimated, data from the Roseland, New Jersey-based ADP Research Institute showed.
The report showed Sandy reduced payrolls by about 86,000. The median forecast of 38 economists surveyed by Bloomberg projected a 125,000 rise in November.
Stock-index futures held earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing this month rose 0.2 percent to 1,408.2 at 8:56 a.m. in New York.
Economists’ forecasts for productivity ranged from unchanged to 3.5 percent. The government’s prior estimate was a 1.9 percent gain.
Unit labor costs, which are adjusted for efficiency gains, were revised down from a previously reported 0.1 percent drop, and compare with a projected 1 percent decrease, according to the Bloomberg survey median. They fell at a 0.5 percent pace in the second quarter, revised down from a previously reported 1.7 percent gain.
Worker efficiency rose 1.7 percent over the past four quarters, the biggest year-over-year gain since the last three months of 2010. Labor costs climbed 0.1 percent, the smallest 12-month advance in almost two years.
Today’s figures reflected updated data on worker pay. Wages and salaries in the third quarter rose by $30.4 billion, less than the initially reported $43.3 billion, Commerce Department figures showed on Nov. 29. Wage gains in the prior period were also cut, to a $23.3 billion second-quarter gain that was about half the prior estimate of $55.2 billion.
The productivity report showed output rose at a 4.2 percent rate, following a 2.1 percent gain the prior quarter.
Hours worked rose at a 1.3 percent pace, while compensation for each hour worked climbed at a 0.9 percent annual pace.
Adjusted for inflation, hourly earnings decreased at a 1.4 percent rate after increasing at a 0.6 percent pace.
Commerce Department data released last week showed gross domestic product climbed at a 2.7 percent annual rate from July through September after a 1.3 percent pace in the previous three months. A narrower trade deficit and gains in inventory overshadowed a smaller increase in consumer spending.
The GDP report also showed corporate profits climbed 3.5 percent in the third quarter from the previous three months, and rose 8.7 percent from the same period last year.
The so-called fiscal cliff, or more than $600 billion in tax increases and government spending cuts slated to take effect if lawmakers fail to act by year’s end, is one reason businesses are cautious about hiring and capital spending.
Sandy, the largest Atlantic storm ever to hit the U.S., will also trim growth this quarter and hurt employment. Reflecting the hit, payrolls rose by 87,000 in November after a 171,000 gain in October, according to the Bloomberg survey median ahead of a Labor Department report due Dec. 7. The jobless rate probably held at 7.9 percent, economists predicted.
SunTrust Banks Inc. (STI), the eighth-largest U.S. commercial lender by deposits, said this week it is closing branches and trimming staff as it seeks to cut costs, according to Chief Executive Officer William Rogers.
The reductions may come at an “increased pace,” Rogers said Dec. 4 at an investor conference in New York sponsored by Goldman Sachs Group Inc. The Atlanta-based lender expects to finish 2012 with 5 percent fewer employees from a year earlier, Rogers said.
Slowing business investment may also limit productivity gains. Corporate spending on equipment and software fell 2.7 percent last quarter, the first decline since the economy was in a recession in 2009, according to the GDP report on Nov. 29.
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