American workers who still have their jobs are laboring harder than ever, keeping their companies operating profitably following the biggest rounds of job cuts since the Great Depression.
Productivity soared in the spring, helping to bolster corporate profits as the economy approached the trough of the nation’s deepest postwar recession.
Employers shed workers faster than output declined in the second quarter, sending productivity surging at its most rapid pace in nearly six years, while labor costs plummeted at their fastest rate since 2000.
Productivity, which measures output for each hour of work, jumped at an annual rate of 6.4 percent in the April-June period, the Labor Department reported Tuesday. Hours worked plunged 7.6 percent, much steeper than output, which declined 1.7 percent.
Increasing output per hour often requires those who survived layoffs to work much harder, especially knowing that they could be next. More than a quarter-million jobs were lost in the private sector last month alone.
“People don’t want to be left out in the cold, so they do fight harder for their jobs,” said John Challenger, chief executive officer of Challenger, Gray & Christmas, an outplacement company. “They work harder, they work longer hours. They get in fewer battles,” he said.
“It isn’t so much companies pressing down on their workers. It’s a natural effect that occurs because people want to hold on to their jobs,” Mr. Challenger said.
Because hourly compensation, including wages and benefits, increased by only 0.2 percent, unit labor costs plunged at a 5.8 percent annual rate during the second quarter. It was the biggest drop in labor costs in more than eight years. Over the past year, labor costs have declined 0.6 percent as productivity has advanced by 1.8 percent.
Soaring productivity and plunging labor costs helped to bolster second-quarter corporate profits, which have exceeded expectations, helping to fuel a sizzling stock-market rally. The S&P 500 stock index has rallied nearly 50 percent from its March low.
“The fact that American workers are capable of generating these amazing productivity gains ultimately is good news for employment,” said Brian Bethune, chief U.S. financial economist for IHS Global Insight. “As the economy moves from recovery in the second half of 2009 … to potential expansion in the second half of 2010 and beyond, there is no doubt that businesses will have a strong desire to add more of these high-quality workers into their teams.”
Analysts said the sizable efficiency gains also will limit inflationary pressures. That will give the Federal Reserve more time to implement its “exit strategy” by removing from the financial system the massive liquidity it injected to thaw frozen credit markets and battle the worst financial crisis since the Great Depression.
“Businesses have been very aggressive at cutting costs throughout the recession” by eliminating 6.7 million jobs since December 2007, said Mark Vitner, senior economist at Wells Fargo Securities. “There is some hope that the excessive caution undertaken by businesses in this downturn will mean we will not have to endure another jobless recovery as we did following the last two recessions.” Unfortunately, he noted, “today’s productivity data do not support this notion.”
The improvement in productivity “is not very good news for the growing ranks of the unemployed hoping to find a job quickly,” Mr. Challenger said. “With productivity on the rise amid shrinking payrolls, it tells employers that they can continue to produce the same or more output.”
Declining inventories in June added further evidence that businesses are setting the stage for economic recovery in the second half of this year. Wholesalers trimmed their stockpiles 1.7 percent in June, the 10th consecutive month inventories have fallen, the Commerce Department reported Tuesday.
If demand stabilizes as expected, businesses will have to ramp up production to rebuild inventories, which were depleted at a record rate during the second quarter.
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