Productivity Rises More Than Expected in 2Q

By Beacon Staff

WASHINGTON – Productivity surged in the spring by the largest amount in almost six years while labor costs plunged at the fastest pace in nine years.

The Labor Department said Tuesday that productivity, the amount of output per hour of work, rose at an annual rate of 6.4 percent in the April-June quarter, while unit labor costs dropped 5.8 percent. Both results were greater than economists expected.

Productivity is a key ingredient for rising living standards because it means that companies can pay their workers more with the wage increases financed by rising output.

However, in the current recession, companies have been using the productivity gains to bolster their bottom lines in the face of declining sales. Many companies have been reporting second-quarter earnings results that have beaten expectations despite falling sales, due largely to their aggressive cost cutting.

The 6.4 percent jump in productivity followed a 0.3 percent increase in the first three months of the year that was revised downward from an earlier estimate of a 1.6 percent gain. The revision partially reflected the annual benchmark revisions of economic data connected to the gross domestic product.

Economists had expected productivity to surge in the second quarter as businesses continued to lay off workers and trim the number of hours being worked by their remaining employees amid the nation’s worst recession since the end of World War II.

The nation’s total output of goods and services, as measured by the gross domestic product, fell at an annual rate of 1 percent in the second quarter. That was a much slower rate of decline than the previous two quarters when the economy shrank at the fastest pace in more than a half-century.

Many economists believe the current recession is on the verge of ending. If the economy starts to grow in the second half of this year, companies are expected to switch from layoffs and trimming workers’ hours to boosting employment as demand for their products increases.

Still, the leaner work force should help keep productivity rising in coming quarters although the gains are not expected to be as large as the jump in the spring.

The 6.4 percent jump in productivity at an annual rate was the biggest quarterly gain since a 9.7 percent surge in the third quarter of 2003.

The 5.8 percent decline in unit labor costs followed a revised 2.7 percent dip in the first quarter and was the biggest quarterly drop since a 7.7 percent decline in the second quarter of 2000.

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