The productivity of US workers fell more than previously estimated in the second quarter, pushing up labor costs and showing the slowdown in growth will limit profits.
The measure of employee output per hour dropped at a 1.8 per cent annual rate, twice the 0.9 per cent decrease initially calculated and the biggest decline in almost four years, revised figures from the Labor Department showed today in Washington. Workforce expenses rose at the fastest pace in more than a year.
Companies will find it difficult to wring additional efficiency from staff in coming months after cutting 8.4 million workers during the recession as the world's largest economy cools. That means corporate earnings may come under further pressure after growing in the second quarter at the slowest pace in a year.
"It'll be harder for companies to increase profits," said Chris Low, chief economist at FTN Financial in New York. "We either need faster economic growth or there'll be a return to net job losses in coming months, and hopefully we'll get the former."
Economists projected productivity would drop 1.9 per cent, according to the median of 56 forecasts in a Bloomberg News survey. Estimates ranged from declines of 0.5 per cent to 2.4 per cent.
Unit labor costs, adjusted for efficiency gains, were projected to rise 1.2 per cent, according to the survey median.
Fewer Claims
The number of Americans seeking jobless benefits fell last week to a level that indicates the labor market has not improved this year even as the economy expanded, another Labor Department report today showed.
Initial jobless claims fell by 6000 to 472,000 in the week ended Aug. 28, in line with the median forecast of economists surveyed, Applications exceeded the 463,000 weekly average so far this year.
Stock-index futures fluctuated between gains and losses after the reports. Futures on the Standard & Poor's 500 Index expiring this month rose less than 0.1 per cent to 1081.9 in New York. The yield on the 10-year Treasury note increased to 2.61 percent from 2.58 per cent late yesterday.
Today's productivity revision reflects the slowdown in growth. The economy expanded at a 1.6 per cent annual pace from April through June, less than the 2.4 per cent rate previously calculated, the Commerce Department reported on Aug. 27.
Corporate Profits
Corporate profits rose 4.6 per cent last quarter, the smallest gain since the same period in 2009, after a 10.5 per cent increase in the first three months of the year, the report showed. Earnings were up 39 per cent from a year earlier.
Hours worked climbed at a 3.5 per cent pace, the biggest gain in four years and evidence that employers were finding it difficult to meet demand with existing staff levels.
Among manufacturers, productivity is holding up. Factory worker efficiency increased at a 4.1 per cent pace after rising 1.6 per cent in the first three months of the year.
Compared with the second quarter of 2009, productivity climbed 3.7 per cent, compared with a prior estimate of 3.9 per cent. It increased 6.3 per cent in the first quarter from a year earlier, the biggest 12-month gain since 1962.
Preserving Profits
Some companies are still trying to cut expenses to preserve profits. American Eagle Outfitters Inc., a young-adult clothing retailer, will close as many as 100 underperforming stores and realign its workforce. The Pittsburgh-based chain's net income slid 66 per cent in its second quarter ended July 31.
"Given the inconsistencies in business trends and unpredictable consumer behavior, we have intensified our actions to improve efficiencies, streamline our process and strengthen profitability," Jim O'Donnell, chief executive officer, said in statement in August.
Employers have slashed more than 8 million workers from payrolls during the recession that began in December 2007. The Labor Department may report tomorrow payrolls fell by 100,000 in August, reflecting the dismissal of temporary government workers hired for the decennial census, according to the median estimate of economists surveyed. The jobless rate likely rose to 9.6 per cent from 9.5 per cent.
Federal Reserve policy makers on Aug. 10 reiterated their pledge to hold the benchmark interest rate near zero for an "extended period" and announced additional steps to shore up the economy. They believed "the pace of the economic recovery slowed in recent months and that inflation remained subdued," according to minutes of the meeting released this week.
