Worker productivity unexpectedly rises

Say one thing about the nation's pronounced recession: worker productivity has not disappeared.

U.S. Q1 worker productivity unexpectedly rose at a 0.3 percent annualized rate and unit labor costs rose at a 3.3 percent rate, the U.S. Labor Department announced Thursday, as companies continued to find ways to increase per employee output amid difficult business conditions. Further, on a year-over-year basis, productivity rose 1.8 percent.

Economists surveyed by Bloomberg News had expected productivity to be flat in Q1 and unit labor costs to rise 3.4 percent.

In Q4 2008, worker productivity unexpectedly fell at a 0.4 percent annualized rate and unit labor costs surged an alarming 5.7 percent.

For all of 2008, productivity increased 2.8 percent, the largest productivity increase since 2003. In 2007, productivity increased 1.4 percent.

Meanwhile, in Q1 hours worked declined at a 9.0 percent annual pace, the largest drop since 1975. Output fell at an 8.2 percent annual rate. In the manufacturing sector, productivity fell 3.4 percent and output fell a record 22.4 percent.

U.S. productivity continues to impress

Ian Shepherdson, chief U.S. economist for High Frequency Economics LLC in Valhalla, N.Y., said worker productivity continues to impress, and it is offsetting other negative contributors to profit margins.

"This is a decent productivity performance under the circumstances," Shepherdson said in a note to clients, Bloomberg News reported Thursday. Slowing labor costs are "helping limit the downward pressure on profit margins."

Productivity measures output per hour worked. Economists say rising productivity usually leads to increases in income, as businesses can increase salaries/wages paid without increasing their per unit costs. While quarterly productivity statistics are important, most economists focus on the longer, multi-quarter trend, as it's more indicative of overall efficiency and output strength.

Productivity averaged about 2.7 percent during the 1948-1970 period, then slumped to 1.6 percent in 1971-1995 period. 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 1990s," so says economist Peter Dawson.

Economic Analysis: A better-than-adequate Q1 productivity report, given macroeconomic conditions. The nation's workforce continues to become more-efficient, which is a good sign, particularly given other hurdles that businesses face during this pronounced recession (sluggish sales, constrained credit etc.), as it will keep per unit production costs down. As in 2008 and 2007, in Q1 companies did a good job increasing productivity while containing employee costs amid sluggish business conditions. Companies are becoming more efficient and controlling variables that they can control in this recession -- and those factors bode well for earnings growth as the U.S. economy starts to recovery.

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