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Worker productivity jumps -- and business gets the benefits

August 11, 2009 | 11:19 am

U.S. worker productivity surged in the second quarter at a 6.4% annualized rate, the best showing in almost six years, as companies slashed staff and got more production out of fewer people.

That showed up in the better-than-expected quarterly earnings reports from many major firms: With companies facing no pressure to raise wages for remaining employees, productivity gains flowed through to the bottom line.

The jump in productivity followed a meager 0.3% rise in the first quarter and a 0.8% gain in the fourth quarter, the Bureau of Labor Statistics reported.

Historically, productivity -- employees’ output per hour worked -- advances sharply as the economy is beginning to turn from recession to recovery.

The report "is another reassuring sign that the economy is indeed doing what it does at or near the ends of recession," said Robert Brusca, head of Fact and Opinion Economics.

The question is whether companies will respond to better productivity, and better (or at least not-so-bad) earnings, by beginning to rehire even modestly -- to take pressure off their beleaguered remaining staff. A better jobs picture obviously is key to a sustainable economic recovery.

Nomura Securities economists noted an apparent anomaly in manufacturing-sector productivity trends that may point to the loss of some of the most skilled workers in that sector: Productivity in manufacturing jumped at a 5.3% rate in the second quarter -- after falling for four consecutive quarters.

From Nomura:

"The unusually sharp drop in manufacturing productivity and apparent early rebound suggests that manufacturers had reversed their usual pattern of laying off the least productive workers first. These data instead suggest that the more productive workers were dismissed early. This behavioral oddity seems to validate the notion that businesses have accelerated structural downsizing perhaps through early retirement programs for more experienced and presumably more productive workers."

Could some of those more productive workers be needed back at the plant soon, if the economy is reviving?

-- Tom Petruno