AP Economics Writer
Washington — Productivity surged in the spring by the largest amount in almost six years, while labor costs plunged at the fastest pace in nine years.
The results point to a recession losing steam, but they do not bode well for the unemployed or those who are forced to work shorter weeks and are searching for more hours.
The Labor Department reported Tuesday that productivity, the amount of output per hour of work, rose at an annual rate of 6.4 percent in the April-June quarter, while unit labor costs dropped 5.8 percent. Both results were larger than economists expected.
Productivity can help boost living standards because it means companies can pay their workers more, with those wage increases financed by rising output. However, in this recession, companies have been using productivity gains from layoffs and other cost cuts not to hire again but to bolster profits.
The result: Many companies have been reporting better-than-expected second-quarter earnings despite falling sales.
Businesses producing more with fewer employees means millions of unemployed Americans likely will continue to face a dismal job market. Some analysts also worry companies’ aggressive cost-cutting could make it hard to mount a sustainable recovery. A lack of wage growth and a shortage of jobs likely will depress consumer spending, which accounts for about 70 percent of economic output.
In a second report, this one from the Commerce Department, wholesale inventories declined for a record 10th consecutive month, falling 1.7 percent in June. That was nearly double the 0.9 percent decrease economists had expected.
But in an encouraging sign, sales rose 0.4 percent for a second straight month. The first back-to-back increases in a year boosted expectations that businesses will begin to ramp up production to meet rising demand.
Economists expected productivity to surge in the second quarter as businesses continued to lay off workers and trim the number of hours being worked by their remaining employees amid the nation’s worst recession since the end of World War II.
The nation’s total output of goods and services, as measured by the gross domestic product, fell at an annual rate of 1 percent in the second quarter. That was a much slower rate of decline than the previous two quarters when the economy shrank at the fastest pace in more than a half-century.
Many economists say the recession is on the verge of ending. Should the economy start to grow in the second half of this year, some companies might boost employment — if demand for their products shows a sustained increase.
Still, the leaner work force should help keep productivity rising in coming quarters although the gains are not expected to be as large as those in the spring.
“Before the recession of 2001, productivity typically fell in recessions because companies waited too long to respond to the downturn,” according to a research note attributed to Ian Shepherdson, chief U.S. economist at High Frequency Economics.