U.S. second quarter productivity raised 2.2 per cent

Only 219,000 jobs created April to June: Labor Department
By Lucia Mutikani
|hrreporter.com|Last Updated: 09/05/2012

WASHINGTON (Reuters) — Non-farm productivity in the United States increased at a much faster clip than initially thought in the second quarter as businesses largely held the line on hiring even as output rose, helping to keep inflation pressures tamped down.

Productivity increased at a 2.2 per cent annual rate, the Labor Department said on Wednesday. One month ago, it estimated that productivity, which measures hourly output per worker, rose at a 1.6 per cent pace. It fell at a 0.5 per cent rate in the first three months of 2012.

Economists said the rise was likely to be short-lived, and businesses might need to step up hiring soon.

"When mediocre output growth is achieved during a virtual hiring freeze, as was the case in the second quarter, the spike in productivity is generally temporary and payback is typical in the following months," said Erik Johnson, a U.S. economist at IHS Global Insight in Lexington, Mass.

The economy created a measly 219,000 jobs in the April-June period, about one-third of the first quarter's tally.

"A widening gap between output and employment growth is a positive for the economy as long as the labour market itself is flourishing," said Johnson. "It is unlikely that firms will be able to continue generating modest output growth without more proportional increases in hiring."

Hiring did pick up in July, with employers adding 163,000 workers to their payrolls. Economists believe the momentum slowed in August.

The upward revision to productivity growth, which beat economists' forecasts for a 1.8 per cent rate, reflected an upward adjustment to the estimate for second-quarter economic growth to a still-sluggish 1.7 per cent pace from 1.5 per cent.

The economy has been hit by fears of the so-called U.S. fiscal cliff — the US$500 billion or so in expiring tax cuts and government spending reductions scheduled to take hold at the start of next year — and Europe's long-running debt problems.

U.S. financial markets ignored the productivity data and traders took their cue from global developments.

Muted wage pressures

Businesses emerged from the 2007-09 recession lean and are showing little urgency to ramp up hiring, relying on existing workers to meet production and keeping a tight hand on costs such as wages.

Unit labour costs a gauge of the labour-related cost for any given unit of output — rose at a 1.5 per cent rate in the second quarter rather than 1.7 per cent, the report showed.

They were up only 0.9 per cent from one year ago, underscoring the lack of wage-related inflation pressures in the economy and helping to keep the door open to further monetary easing by the Federal Reserve to stimulate the economy.

Fed chairman Ben Bernanke last week described the labour market's stagnation as a "grave concern," raising expectations among economists that the central bank's policy-setting Federal Open Market Committee would decide to pump more money into the economy at its Sept. 12-13 meeting.

"On year-on-year terms, unit labour costs growth remains well-contained, suggesting that the FOMC is unlikely to become concerned about upside inflation risks as it considers its policy options," said Yelena Shulyatyeva, an economist at BNP Paribas in New York.

Worker hours rose at a 0.1 per cent rate in the second quarter, the smallest increase since the third quarter of 2009, while non-farm output increased at a 2.4 per cent pace.

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