Productivity: Workers giving more at the office - Productivity soars as more companies push lean staffs and shore up bottom line

Productivity: Workers giving more at the office - Productivity soars as more companies push lean staffs and shore up bottom line
By Tom Petruno
Copyright © 2009, Chicago Tribune
August 12, 2009
http://www.chicagotribune.com/business/chi-tc-biz-economy-0811-0812-aug12,0,2150050.story


U.S. worker productivity surged in the second quarter at a 6.4 percent annualized rate, the best showing in almost six years, as companies slashed staff and got more production out of fewer people.

That showed up in the better-than-expected quarterly earnings reports from many major firms: With companies facing no pressure to raise wages for remaining employees, productivity gains flowed through to the bottom line.

The jump in productivity followed a meager 0.3 percent rise in the first quarter and a 0.8 percent gain in the fourth quarter, the Bureau of Labor Statistics reported.

Historically, productivity -- employees' output per hour worked -- advances sharply as the economy is beginning to turn from recession to recovery.

The report "is another reassuring sign that the economy is indeed doing what it does at or near the ends of recession," said Robert Brusca, head of Fact and Opinion Economics.

The question is whether companies will respond to better productivity, and better (or at least not-so-bad) earnings, by beginning to rehire even modestly -- to take pressure off their beleaguered remaining staff. A better jobs picture obviously is key to a sustainable economic recovery.

Ideally, businesses would use the productivity gains to stabilize their own financial situations and, as the economy rebounds, resume hiring to meet the rising demand, analysts said.

"Hopefully, businesses will stop the layoffs and start hiring again so that consumers will have the ability to spend, but that is a tricky transition," said Mark Zandi, chief economist at Moody's Economy.com.

Some analysts worry that companies' aggressive cost cutting could make it hard to mount a sustainable recovery. That's because a lack of wage growth and a shortage of jobs will likely depress consumer spending, which accounts for about 70 percent of economic output.

Nomura Securities economists noted an apparent anomaly in manufacturing-sector productivity trends that may point to the loss of some of the most skilled workers in that sector: Productivity in manufacturing jumped at a 5.3 percent rate in the second quarter -- after falling for four consecutive quarters.

"The unusually sharp drop in manufacturing productivity and apparent early rebound suggests that manufacturers had reversed their usual pattern of laying off the least productive workers first," Nomura said. "These data instead suggest that the more productive workers were dismissed early. This behavioral oddity seems to validate the notion that businesses have accelerated structural downsizing perhaps through early retirement programs for more experienced and presumably more productive workers."

In a second report, the Commerce Department said wholesale inventories declined for a record 10th consecutive month, falling 1.7 percent in June. That was nearly double the 0.9 percent decrease economists had expected.

The Associated Press contributed to this report.

tpetruno@tribune.com