Productivity in U.S. Probably Surged, Lowering Labor Costs

Productivity in U.S. Probably Surged, Lowering Labor Costs


Aug. 11 (Bloomberg) -- The productivity of U.S. workers probably grew in the second quarter at the fastest pace in almost two years as employers squeezed more out of remaining staff to bolster profits, economists said before a government report today.

Productivity, how much an employee produces for each hour worked, rose at an annual 5.5 percent pace after a 1.6 percent gain in the prior three months, according to the median estimate of 62 economists surveyed by Bloomberg News. Labor costs likely fell for the first time in a year.

Lower expenses may mean companies will need to fire fewer workers as sales stabilize, the first step toward ending the worst employment slump in the post-World War II era. Increases in efficiency also help curb inflation, giving Federal Reserve policy makers, meeting this week, extra time to remove stimulus.

“The gain in productivity sets a good foundation for the recovery,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “As the corporate profits picture becomes healthier and demand rises, businesses will be able to hire people. The Fed can take a very gradual approach to their exit strategy,” as “there’s really no threat of inflation from labor costs,” he said.

The Labor Department’s report is due at 8:30 a.m. in Washington. Survey estimates ranged from gains of 7 percent to 2.9 percent. Labor expenses probably fell at a 2.5 percent rate after increasing at a 3 percent pace the prior quarter, according to the survey.

Fewer Stockpiles

A report from the Commerce Department at 10 a.m. may show wholesalers cut inventories in June for a 10th consecutive month, according to the survey median.

Efficiency surged from April through June because employers cut payrolls and hours even faster than output. The total number of hours worked last quarter shrank at a 7.8 percent annual pace, while the economy contracted at a 1.7 percent pace excluding farms, according to figures from Labor and Commerce.

A Labor report last week showed payrolls fell by 247,000 in July after a 443,000 drop in June, in a sign job losses are already starting to ease. The economy has lost 6.7 million jobs since the recession began in December 2007.

Smaller workforces have helped stem the slump in profits. For the second quarter, 72.2 percent of Standard & Poor’s 500 companies beat consensus earnings estimates, just below the 72.3 percent ratio five years ago that was the highest since at least 1993, data compiled by Bloomberg showed as of yesterday.

Profits, Stocks

Investors are getting encouraged by the improvement. The S&P 500 index rose in each of the last four weeks, leaving it trading at the highest level relative to earnings since 2004.

DuPont Co., the third-biggest U.S. chemical maker, was one of the companies which posted second-quarter profit that topped analysts’ estimates as it trimmed expenses faster than expected. Wilmington, Delaware-based DuPont is cutting fixed costs by $1 billion, in part by shedding 2,500 employees and more than 10,000 contractors, and has achieved 60 percent of its cost- reduction target.

“Our aggressive actions to improve productivity and reduce costs across the company are paying off,” Chief Executive Officer Ellen Kullman said in a statement last month.

Some companies are already bringing employees back as demand stabilizes. Union Pacific Corp., the second biggest U.S. railroad by sales, trimmed payrolls by operating with about 45,000 workers in the second quarter, its lowest employment since its 1996 purchase of Southern Pacific Rail Corp.

Omaha, Nebraska-based Union Pacific, whose profit also beat analysts’ estimates, has recalled some furloughed workers since June as weekly carload rates gain. About 900 of the 5,300 conductors, engineers and other employees laid off as of mid- June have returned, a spokesman said in July.

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