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Productivity fell while labor costs rose this spring; could signal businesses need to hire
WASHINGTON (AP) ' Worker productivity fell this spring more quickly than previously estimated and labor costs rose at a faster clip. The decline in worker output could mean that some companies need to hire if they want to meet growing demand.
The Labor Department reported Thursday that productivity declined at an annual rate of 0.7 percent in the April-June period. That was a downward revision from the 0.3 percent decline first estimated a month ago and the second straight quarterly decline. Labor costs rose at an annual rate of 3.3 percent, faster than the 2.4 percent increase originally reported.
The changes reflected downward revisions made last week to overall economic growth.
Productivity measures the amount of output per hour worked. Higher productivity is generally a good thing because it can raise standards of living by enabling companies to pay workers more without raising their prices and increasing inflation.
A slowdown in productivity growth is bad for the economy if it persists for a long period. But it can be good in the short term when unemployment is high, if it means companies are reaching the limits on how much extra output they can get from their existing work forces. It can signal that companies need to increase hiring.
Joshua Shapiro, chief U.S. economist at MFR, Inc., said many businesses are in a tough position because they cut so many workers during the recession and have little leeway to reduce staffs further unless demand "nosedives."
"Therefore, the gap between growth in output and the rate of expansion in total hours worked has narrowed, which by definition means slower productivity growth and therefore a more difficult environment for profit margins," Shapiro said.
Economists expect productivity to slow over the next couple of years while labor costs rise. However, they don't see these developments as worrisome during the current period of high unemployment and weak income growth.
Economists at JPMorgan Chase are forecasting that productivity this year will grow by just 0.7 percent.
The drop in productivity in the April-June quarter followed a 0.6 percent productivity decline in the first quarter. The rise in unit labor costs in the second quarter followed a 6.2 percent increase in the January-March period.