Updated March 4 at 7:04pm

Worker productivity cools as U.S. labor costs rise

‘Productivity improvements offset the entire wage-rate increase.’

Bloomberg News
The productivity of U.S. workers rose at a slower pace in the fourth quarter and labor costs jumped, indicating businesses are reaching the limit of wringing efficiency from their workforce. More

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WORKFORCE

Worker productivity cools as U.S. labor costs rise

‘Productivity improvements offset the entire wage-rate increase.’

Posted:

The productivity of U.S. workers rose at a slower pace in the fourth quarter and labor costs jumped, indicating businesses are reaching the limit of wringing efficiency from their workforce.

The measure of employee output per hour climbed at a 0.9 percent annual rate, after a 1.8 percent gain in the prior three months, revised figures from the Labor Department showed March 7 in Washington. Expenses per worker climbed at a 2.8 percent rate, more than twice as much as previously estimated.

Productivity will probably remain restrained as businesses gain confidence in the economic expansion and take on more workers to meet growing demand. Nonetheless, rising labor costs and slowing efficiency may put pressure on corporate profits.

Less productivity means “the only way to increase output is to hire more people,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who was the only analyst in a Bloomberg News survey to accurately forecast the jump in labor costs. “It’s a positive for the labor market,” he said, at the same time “margins should be getting squeezed a bit.”

Another March 7 report showed companies added 216,000 workers to their payrolls in February, according to data from Roseland, New Jersey-based ADP Employer Services.

Fourth-quarter productivity was revised up from an initial estimate of 0.7 percent issued last month. Labor costs were revised up from a prior estimate of 1.2 percent.

For all of 2011, productivity climbed 0.4 percent, the smallest gain since 1995. The increase was revised down from an initial estimate of 0.7 percent.

Labor expenses last year increased 2 percent, revised from a 1.2 percent gain and the most since 2008.

Fourth-quarter productivity was projected to rise 0.8 percent, according to the median forecast of 65 economists surveyed by Bloomberg News. Estimates ranged from gains of 0.5 percent to 1.6 percent.

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