Bad News for Jobseekers: Productivity Surges

With its biggest quarterly gain in six years. But here’s the dirty little secret: “According to the productivity report, hours worked plunged at a 7.6 percent rate in the second quarter, while output fell 1.7 percent.” From Reuters:

U.S. productivity surges, inventories lean
Tue Aug 11, 2009 5:12pm EDT

By Lucia Mutikani

WASHINGTON (Reuters) U.S. output per worker rose at its fastest pace in six years during the second quarter as businesses wrung more productivity from fewer staff in a sign that a recovery from recession will be slow and unlikely to create a surge in hiring.

A Labor Department report on Tuesday showed non-farm productivity, a gauge of hourly output per worker, jumped at a 6.4 percent annual rate, the sharpest since the third quarter of 2003 after a 0.3 percent gain in the January-March quarter.

“The bounce in productivity is another indication that the nasty U.S. recession is drawing to a close. The bad news is, however, that firms are still reluctant to hire,” said Harm Bandholz, an economist at UniCredit Markets and Investment Banking in New York.

A separate government report showed U.S. wholesalers cut their inventories of unsold goods for a 10th straight month in July as businesses continued running as lean as possible in the face of uncertainty about how durable a recovery will be.

U.S. stocks fell and government bond prices rallied to session highs as investors worried businesses were cutting inventories sharply because they remained skeptical about a rebound in consumer demand.

The Dow Jones industrial average ended down 1 percent at 9,241.45 points, while the Standard & Poor’s 500 index dropped 1.27 percent to 994.35.

White House economic adviser Larry Summers said on Tuesday a foundation for economic recovery was being laid, but warned the economy still had a long way to go.

Analysts said the sustained drop in wholesale inventories posed a risk that second-quarter gross domestic product could be revised lower to show a annual rate of decline steeper than the 1 percent reported by the government last month.

“We are lowering our estimate of the percent change in second-quarter real GDP from -1.2 percent to -1.8 percent,” said Abiel Reinhart, an economist at JPMorgan in New York.

“We also expect that the change in real business inventories in the second quarter will be revised down from what was already a record $141 billion decline (annual rate) to a $162 billion decline,” he added.

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