U.S. productivity grew during the first quarter at the fastest pace in almost two decades as companies kept payrolls lean while making more goods in a recovering economy.
The Labor Department’s measure of how much an employee produces for every hour of work rose at a revised 8.4 percent annual rate from January-March, the Labor Department said. While down from the 8.6 percent initially estimated, it was the fastest since mid-1983 and up from a 5.5 percent increase in the final
three months of 2001.
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Companies reduced worker hours for the fourth straight quarter to boost productivity, which helps determine how fast the economy can expand without triggering inflation. Manufacturers such as General Motors Corp. were able to assemble more cars and other durable goods with fewer workers through better management of time and increased use of computers.
“Companies were able to leverage sales growth by getting more out of their workers,” Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, said before the report. “It’s not atypical of the early stages of recovery.”
Unit labor costs, which reflect changes in hourly compensation and the amount of work performed, fell at a
5.2 percent rate in the first quarter, the largest decline since the second quarter of 1983 and close to the previously reported 5.4 percent rate. Labor costs fell at a 3.1 percent pace in the fourth quarter.
The revisions were as expected in a Bloomberg News survey of 59 economists.
Productivity typically surges after economic recoveries, such as the present one from a recession that began in March 2001, as employees who survive job cuts contend with increased workloads. While good for corporate profits, higher productivity may temporarily hurt some workers because it reduces the need for labor.
Helping Growth Without Inflation
“The fact that companies need less labor to do the same thing is a disappointment to people who are trying to find jobs,” Pierre Ellis, senior economist at Decision Economics Inc. in New York, said before the report. “It also puts a cloud over the continued growth of consumer spending, because we’re not getting
the growth in labor use and labor income that would be normal as the economy begins to recover.”
Gains in productivity enable the economy to expand without pushing up the cost of doing business. That holds down inflation, one of the main reasons Federal Reserve policy makers are expected to keep the overnight bank lending rate at a 40-year low for several months.
“The better your productivity is, the faster the economy can grow without putting strains on capacity,” Greg Mount, deputy chief economist at Bank One Corp. in Chicago, said before the report. “Inflation is flat to down in terms of goods production.”
In the first quarter, businesses reduced hours worked at a 2.1 percent annual pace, the fourth straight decline, after cutting workers hours at a 3.8 percent rate in the fourth quarter. Output increased at a 6.1 percent rate, the fastest since the second quarter of 2000.
Manufacturing Productivity
Factories have been especially focused on efficiency.
Productivity at U.S. manufacturers rose at a 9.4 percent annual rate, the fastest since the fourth quarter of 1999. The rate was previously reported as 9.7 percent.
At General Motors, the world’s largest automaker, North American profits rose fivefold in the first quarter as it boosted production and simultaneously eliminated jobs. The company made 1.35 million vehicles, up from 1.29 million in the fourth quarter.
General Motors also cut the number of its North American employees to 199,000 from 202,000 at the end of last year.
The automaker said it relies on assembly workers to help identify inefficiencies. “The operator is the most integral part,” General Motors spokesman Pat Morrissey said. Worker efforts help “eliminate waste and unnecessary materials, and improve how you deliver parts. The ideas can be shared across all
our plants.”
Non-Financial Corporations
Productivity at non-financial corporations, reported for the first time today, rose at a 6.7 percent rate in the first quarter after rising at an 11.2 percent pace in the fourth quarter.
Many workers ultimately benefit from productivity gains even if they cause layoffs in the short-term, economists say. That’s because productivity lets companies raise wages without raising prices. Workers also are pushed to learn new skills.
The economy grew at a 5.6 percent annual rate during the first quarter, the fastest in almost two years and up from a 1.7 percent pace in the fourth quarter. The unemployment rate rose in April to 6 percent, the highest in almost eight years, as much of the growth came from productivity gains.
Bloomberg News
