Productivity drops during the spring

U.S. workers were less productive during the April-June quarter, which signals there could be issues with future hiring, according to When workers are less productive and cost more, companies are less likely to hire.

Productivity fell 0.3 percent during the April-June quarter after declining 0.6 percent during the January-March quarter. This is the first back-to-back decline in productivity since the second half of 2008.

As a result, unit labor costs increased 2.2 percent during the spring quarter after increasing 4.8 percent—the biggest increase since 2008—during the previous quarter.

Productivity measures the amount of output per hour worked. Higher productivity typically is good because it can allow companies to pay workers more without raising prices and increasing inflation. However, in the short term, an increase in productivity can be negative if it results from job cuts; when companies laid off workers during the recession, remaining employees worked harder and companies invested in technology and machinery that would help save on labor.

A long-term drop in productivity typically is bad for the economy, but it can be positive when unemployment is high because it means companies are reaching their limits with their existing work forces and will need to hire more workers.

But a decrease in productivity when economic growth has declined is troubling, likely signaling that companies hired too many workers earlier this year because they assumed growth was accelerating. As a result, there was weaker output from a larger work force.

Date : 8/12/2011