WASHINGTON-US companies will have to keep hiring steadily to meet their customers' rising demand. That's the message that emerged yesterday from a report that employers are finding it harder to squeeze more output from their existing staff. Worker productivity rose at an annual rate of 0.9 per cent in the October-December quarter, the Labor Department said. While that's a slight upward revision from last month's preliminary estimate, it's half the pace from the July-September quarter.
Productivity, the amount of output per hour of work, grew last year at the slowest pace in nearly a quarter of a century. A slowdown is bad for corporate profits. But it can be a good sign for future hiring. It may mean that companies have reached the limits of what they can get out of their existing work force and must add more workers if they want to grow. That trend already looks to be happening. A report yesterday from ADP, a payroll provider, estimated that companies added 216,000 workers in February. The survey did not include government agencies, which have been cutting jobs.
A more reliable read on hiring will come tomorrow when the government issues its February jobs report. Expectations are high after two strong months of job growth in December and January, a steady decline in unemployment benefit applications and a jump in consumer confidence.
"The slowing trend in productivity growth has largely confirmed that the cyclical bounce in productivity that the economy typically experiences following a recession has run its course," said Troy Davig, an analyst for Barclays Capital Research. "Future productivity gains are likely to be harder won, so firms will likely need to rely increasingly on adding to payrolls to increase output, rather than squeeze existing resources."
The economy has added an average of 200,000 net jobs per month from November through January. That has helped lower the unemployment rate to 8.3 per cent. One concern is that labour costs are on the rise. They increased at a 2.8 per cent annual rate in the fourth quarter. While that lower than the 3.9 per cent rise in the third quarter, it was much higher than the initial fourth-quarter estimate.
Rising labour costs could push inflation higher if businesses are forced to raise prices. Some economists said that's unlikely to be sustained as long as millions of Americans remain out of work and others are seeing little growth in wages. Productivity in the fourth quarter was revised higher after the government said total economic growth was slightly faster than first thought.
AP
