U.S. worker productivity surges as labor costs fall
Filed under: Economy
Recession or expansion, tepid or roaring commerce conditions, there's been one constant in the U.S. economy: Worker productivity continues to increase.U.S. worker productivity surged at an annualized rate of 9.5 percent in the third quarter, with unit labor costs falling at a 5.2 percent rate, the U.S. Labor Department announced Thursday, as companies increased output even as they continued to trim payrolls. What's more, it was the highest increase in productivity in six years.
Economists surveyed by Bloomberg News had expected productivity to increase 6.3 percent and unit labor costs to fall 3.9 percent in Q3. In Q2, productivity increased a revised 6.9 percent and unit labor costs fell a revised 6.1 percent; in Q1, productivity increased 1.6 percent and unit labor costs rose 3.0 percent.
Further, the report indicates how corporate earnings are rising: In Q3 output increased 4.0 percent, but hours worked plummeted 5.0 percent, with real hourly compensation rising just 0.2 percent. That means companies are getting more production out of existing staff.
Large, Yearly Productivity Gains Continue
What's more, the report shows continued, long-term productivity gains amid contained costs. Over the past 12 months, productivity rose 4.3 percent while unit labor costs have declined 3.6 percent -- the largest cost decline since federal government records began for unit labor costs in 1948. The decline in labor costs explains how corporate results could improve despite the recession. That trend should also help keep inflation in check as the U.S. Federal Reserve continues its quantitative easing and low-interest-rate policies to stimulate the U.S. economy.
Another tell-tale stat: manufacturing productivity rocketed 13.6 percent in Q3, while manufacturing unit labor costs plunged 7.1 percent. Manufacturing output increased 7.7 percent despite a 5.2 percent decline in hours worked.
However, investors can still see the effects of the nation's pronounced contraction on the overall economy in the Q3 data. In the past 12 months, output fell 3.5 percent, and hours worked declined a record 7.5 percent.
Productivity measures output per hour worked. Economists say rising productivity usually leads to increases in income, as businesses can increase salaries and wages without increasing their per unit costs. While quarterly productivity statistics are important, most economists focus on the longer, 12-month trend, as it's more indicative of overall efficiency and output strength.
U.S. productivity averaged about 2.7 percent during the 1948-1970 period, then slumped to 1.6 percent from 1971-1995. However, starting in 1995 the technology revolution driven by the personal computer, microprocessor, and the Internet, among other breakthroughs, propelled a large increase in productivity to about 2.5 percent per year. The remarkable productivity rate helped create the record earnings and rising real, median incomes that characterized the "Roaring 90s."
Economic Analysis
The Q3 productivity report was certainly impressive but, frankly, unsustainable. Here are both sides of the productivity gain argument: One school of economists argues that companies have squeezed all they can out of their current payrolls -- that is, that the deep employment cuts during the pronounced recession have resulted in organizations that are pared to the bone. If that's the case, the economy should trend toward monthly job gains of better than 200,000 as the expansion gains steam. Conversely, another school of economists argues that excess capacity, enhanced productivity, and little pressure to add staff means companies and factories can increase output for several quarters more without adding staff. If the latter's the case, payrolls will not increase as much as they historically would during the expansion's initial stage.
Most economists would agree, however, that despite the worst recession in more than 25 years, U.S. companies are becoming leaner and meaner, with a workforce that's increasing its productivity and finding ways to the same (or more) with less: Employees are still a good bargain for most companies. All of the above bodes well for corporate revenue and earnings in the quarters ahead.
Further, the report indicates how corporate earnings are rising: In Q3 output increased 4.0 percent, but hours worked plummeted 5.0 percent, with real hourly compensation rising just 0.2 percent. That means companies are getting more production out of existing staff.
Large, Yearly Productivity Gains Continue
What's more, the report shows continued, long-term productivity gains amid contained costs. Over the past 12 months, productivity rose 4.3 percent while unit labor costs have declined 3.6 percent -- the largest cost decline since federal government records began for unit labor costs in 1948. The decline in labor costs explains how corporate results could improve despite the recession. That trend should also help keep inflation in check as the U.S. Federal Reserve continues its quantitative easing and low-interest-rate policies to stimulate the U.S. economy.
Another tell-tale stat: manufacturing productivity rocketed 13.6 percent in Q3, while manufacturing unit labor costs plunged 7.1 percent. Manufacturing output increased 7.7 percent despite a 5.2 percent decline in hours worked.
However, investors can still see the effects of the nation's pronounced contraction on the overall economy in the Q3 data. In the past 12 months, output fell 3.5 percent, and hours worked declined a record 7.5 percent.
Productivity measures output per hour worked. Economists say rising productivity usually leads to increases in income, as businesses can increase salaries and wages without increasing their per unit costs. While quarterly productivity statistics are important, most economists focus on the longer, 12-month trend, as it's more indicative of overall efficiency and output strength.
U.S. productivity averaged about 2.7 percent during the 1948-1970 period, then slumped to 1.6 percent from 1971-1995. However, starting in 1995 the technology revolution driven by the personal computer, microprocessor, and the Internet, among other breakthroughs, propelled a large increase in productivity to about 2.5 percent per year. The remarkable productivity rate helped create the record earnings and rising real, median incomes that characterized the "Roaring 90s."
Economic Analysis
The Q3 productivity report was certainly impressive but, frankly, unsustainable. Here are both sides of the productivity gain argument: One school of economists argues that companies have squeezed all they can out of their current payrolls -- that is, that the deep employment cuts during the pronounced recession have resulted in organizations that are pared to the bone. If that's the case, the economy should trend toward monthly job gains of better than 200,000 as the expansion gains steam. Conversely, another school of economists argues that excess capacity, enhanced productivity, and little pressure to add staff means companies and factories can increase output for several quarters more without adding staff. If the latter's the case, payrolls will not increase as much as they historically would during the expansion's initial stage.
Most economists would agree, however, that despite the worst recession in more than 25 years, U.S. companies are becoming leaner and meaner, with a workforce that's increasing its productivity and finding ways to the same (or more) with less: Employees are still a good bargain for most companies. All of the above bodes well for corporate revenue and earnings in the quarters ahead.
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Reader Comments (Page 1 of 2)
11-05-2009 @ 12:36PM
Ted said...
If the familiar term: "Hanging on by a thread" is now considered to be a favorable situation and is indicative of a "surging" US economy, as stated in this article, then we should have nothing to fear...but, the majority of working and unemployed Americans know that this is not the real situation we are facing now. No amount of propaganda can change this sad fact.
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11-05-2009 @ 12:52PM
Erik said...
The only reason productivity has risen is that the worker is so fearfull of losing his or her job. Businesses have made a come back by cutting jobs and wages and Wall street applaudes them. These are very false numbers. You have less customers for your products makeing less money, this can not last. The Banks are worst they borrow our money and then pay it back by gouging the very people they borrowed from, this is all very sick economics.
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11-05-2009 @ 1:32PM
Rob said...
Have to agree with you Erik. A job in a Union Shop used to provide a worker, whether good, bad or indifferent, with a well paying job from which he couldn't be fired. But, our economic situation has resulted in the Union Worker is discovering what other Workers have always know, you have to put effort into your work to help make your company productive so you still have a job.
the reason for the increase in productivity
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11-05-2009 @ 1:43PM
Iridium said...
I'm with Joe. I applaud the rising trend of slave labor!!!
Myabe we can go back to the early part of the industrial revolution where people were forced to work 20 hour days for pennies. Where you were more likely to die on the job than make it to your 30th birthday.
Companies are advertising hard labor 50 hour workweek industrial jobs for $9 an hour in the newspaper. A hiring manager actually said in a news story that he is having a hard time filling positions.
$9 an hour is a total insult of a job. You can't live on that. However that is where the US econoy is going. Force a single person to do the job of 10 with pay half what a single person was paid 10 years ago.
Wall Street cheers productivity gains but this increase is nothing but bad for the true economy. Increased productivity is the only way to keep bottom end profits higher to appease the pit of dispair that is Wall Street.
The answer is simple. To fix the economy Wall Street must be destroyed. Not to put a socialist sytem in place, but to bring a real capitalist system back.
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11-05-2009 @ 1:53PM
Nelly said...
I still remember that old saying "do more with less". I too was reminded of that with a prior employer who believed this mantra. By the way, this company, folded. People are terrified of a job loss, foreclosures, reposessions, etc..., so of course they will suck it up and "do more with less". Don't toot your horn so soon America, this will NOT solve our problems. It will lead to new health issues, like stress, fatigue, depression. I am afraid for our future if we continue to exploit our hard work.
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11-05-2009 @ 2:13PM
JK said...
When I was working my managers would always use the terms efficiency..productivity..teamwork ..resourceful....translated it meant bend over were gonna stick it to ya again!!
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11-05-2009 @ 2:25PM
tsafa said...
This is why recession is good. You shed off unproductive and overpaid people and hire them back cheaper. Recession is part of the natural economic cycle. In a few years when the economy is booming some people will demand excessive raises. They will get them... and then they will be laid off again when the next recession.
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11-05-2009 @ 2:43PM
Gayle Adcock said...
And the other article on the list is executive bonuses are hitting new highs. What a country.
Reply
11-05-2009 @ 3:08PM
MADDAT52 said...
Union labor forces finally find out what it's like to have to produce to get paid!
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11-09-2009 @ 7:48PM
galvin said...
Productivity increases are easy to come by in the worst job market since the Great Depression but have nothing to do with the long term growth that we need. The real unemployment rate (U6 in the BLS numbers) is at a STAGGERING 17% and INCREASING. U6 must be cut in half to get this economy back on solid ground. Investors should approach this market with caution: When Wall Street begins to believe Washington's hype we are all swimming in the deep end of the pool.
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11-05-2009 @ 3:27PM
dan said...
No brain-er here. Even in the 29 depression productivity increased due to layoffs...We are headed for a jobless recovery because of transnational corporations rule your government, you know, the government who is elected to represent you. Outsourcing started with Jack Welch and every Republican has supported it along with the corporate Democrats, as Bill Clinton did.
In 1973 was when exports started to decrease and imports began to infiltrate our shores, and it has been out of ballance since then. Why? In 1948 GATT was passed which reduced America's tariffs from 29% to 15% and things got moving toward globalism and the export of jobs from this country. Sonce then tariffs have been reduced to around 5%.
However, we could have been in a better position if we had an economy more closely to that of Germany's pre 1990. Corporations are made by the government to be productive and competitive, by not allowing them to become monopolies, and there in lies the difference.
You see, if the neocon Republicans and the corporate Democrats were for free enterprise they would break up the monopolies in health insurance, gas and oil, auto industry, etc. and allow small companies to grow and prosper without being bought and sold with debt by their competitors. But they're not.
They are being bought by the corportists to say big government and taxes are the problem to growth. It's mainly the libertarians of the Ayn Rand ilk that believe that no regulation and big government is the problem. If that were true, why do we have a banking failure and no competition in health insurance, gas prices, pharmaceuticals, and on and on.
Because they get their campaign contributions form them to keep things the way they are. It's time to change our elections to public funded elections and make it illegal to take any money from anyone..............
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11-05-2009 @ 3:32PM
Realist said...
And why not - everyone is s-h-i-t-t-i-n-g bullets, afraid they will lose their jobs as we slowely but surely sink to third world status. Now we know how the Thailanders, Vietnamese and Mexicans feel.
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11-05-2009 @ 3:56PM
Josephine said...
What do we still make? I thought everything was shipped to Mexico or overseas.
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11-05-2009 @ 4:10PM
Gc said...
Periodically one hears that worker productivity has increased quite a bit. Yet business never recognizes that. Their attitude is always , "Let's beat them up some more and see where it goes." Just to be able to survive, a worker needs at least $20 hour plus benefits. That's only about $43,000 yearly. Yet the jobs offered are in the $9 per hour range with no benefits. Employers also say that they have plenty of jobs but can't find qualified employees. Unemployed people are highly motivated. How about businesses offering training? Not evey job needs a PhD. With some cooperation, this ugly recession could be just a bad memory.
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11-05-2009 @ 4:11PM
DAVO said...
WHEN A COMPANY SLIMS DOWN THE WORKERS LEFT GET DO THE LAID OFF WORKERS WORK AND THEIR OWN . THEY WONT HAVE TO HIRE ANYBODY WHEN TIMES GET GOOD , CAUSE IT AINT COMMING BACK . ENOUGH JOBS HAVE LEFT THIS COUNTRY FOR CHINA AND INDIA ETC.
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11-05-2009 @ 4:15PM
JJMartin said...
Yes, the "new normal"......Work like a dog. Work when you're sick. Don't eat lunch. Don't go home until late at night. Come in at least an hour early. Work on weekends. Work on holidays. Give up your vacation. Give up your raise. Work like a mule. Don't look up. Keep working. Work harder. Work faster. Work, work, work. Because soon your job will be outsourced to India.
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11-05-2009 @ 4:57PM
MADDAT52 said...
The unions wanted this Obanation and now they don't like the work?
11-05-2009 @ 4:37PM
Bob said...
Corporate profits are up,people are doing there job and the persons that once worked there. Its the walmart way!
What used to be middle class will be getting paid third world wages. God bless the unions!
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11-05-2009 @ 5:03PM
MADDAT52 said...
I work in a union machine shop and I was threatened because I accidentally outperformed the day shift by 300%. I never broke a sweat or missed a break.
11-05-2009 @ 4:43PM
Shorthosep said...
What I always tell a union worker is this. Charge $1.00 per hour, I'm sure some non-union worker will then come in and dothe job for free!!!!!!
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