U.S. Workers Were Less Productive in the Spring

By Christopher S. Rugaber, AP Economics Writer

WASHINGTON (AP) — U.S. workers were less productive in the spring for the second quarter in a row, a trend that may not bode well for future hiring.

Productivity dropped 0.3 percent in the April-June quarter, following a decline of 0.6 percent in the first three months of the year, the Labor Department said Tuesday. It was the first back-to-back decline in productivity since the second half of 2008.

The drop in productivity helped push unit labor costs up 2.2 percent. That follows a 4.8 percent rise in labor costs in the first three months of this year, the biggest increase since the last three months of 2008.

Rising labor costs reduce corporate profits. Labor represents the largest expense for most companies. And when workers are less productive and cost more, companies are less likely to add jobs.

The stock market shrugged off the report and prepared to rebound after Monday's 643-point plunge. Dow Jones futures rose 137 points.

Productivity measures the amount of output per hour worked. Higher productivity is generally a good thing because it can raise standards of living by enabling companies to pay workers more without raising their prices and increasing inflation.

Still, productivity gains can be painful in the short run if they are a result of job cuts. That's what happened in the recession, when productivity rose sharply as companies laid off millions of workers and figured out how to do more with less. Employees worked harder and companies invested in labor-saving technology and machinery.

A slowdown in productivity growth is bad for the economy if it persists for a long period. It can be good in the short term when unemployment is high, if it means companies are reaching the limits on how much extra output they can get from their existing work forces.

If economic growth increases later this year, less productive companies may have to step up hiring. But the gains are unlikely to be large. Many economists forecast growth of roughly 2.5 percent in the final six months of the year. That's barely enough to keep up with population growth.

Economists say a drop in productivity when economic growth has declined is a troubling sign. That likely means companies hired too many workers earlier this year, based on the assumption that growth was picking up. The result: weaker output from a larger work force.

"If demand remains weak, there's a danger that businesses may try to boost productivity by cutting jobs," said Paul Dales, an economist at Capital Economics.