Productivity in U.S. Rose More Than Forecast in Third Quarter - Bloomberg
Productivity in U.S. Rose More Than Forecast in Third Quarter
By Bob Willis - Nov 4, 2010
Nov. 4 (Bloomberg) -- More Americans than forecast filed applications for unemployment benefits last week, as jobless claims rose by 20,000 to 457,000 from a revised 437,000 the prior week, Labor Department figures showed today in Washington. Another Labor Department report showed worker productivity rose more than forecast in the third quarter as companies redoubled efforts to rein in costs amid signs the recovery was cooling.
Employers in the U.S. squeezed more productivity from workers in the third quarter, leading to an unexpected drop in costs that signals inflation will remain low.
Employee output per hour rose at a 1.9 percent annual rate, more than forecast, after falling 1.8 percent in the previous three months, Labor Department figures showed today in Washington. Worker costs fell for the fifth time in the past seven quarters.
Companies remain focused on cutting expenses to boost profits more than a year into the economic recovery, indicating why the Federal Reserve yesterday said progress toward cutting unemployment and boosting growth was “disappointingly slow.” Another report showed more Americans filed claims for jobless benefits last week, reinforcing expectations the labor market will take time to improve.
“Corporate America is running extremely lean,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who correctly forecast the drop in costs. “They’ve only been hiring the bare minimum. That’s part and parcel behind what is driving the Fed at this feverish pace to try to bring unemployment down.”
Stocks rose on improved earnings at companies from Gap Inc. to Time Warner Cable and on expectations the Fed’s latest initiatives will revive the world’s largest economy. The Standard & Poor’s 500 Index climbed 1.3 percent to 1,213.47 at 10:51 a.m. in New York. Treasury securities jumped, sending the yield on the benchmark 10-year note down to 2.47 percent from 2.57 percent late yesterday, as the report confirmed the central bank’s inflation outlook.
Fed Initiative
The Fed yesterday said it would buy an additional $600 billion of Treasuries through June, expanding its record stimulus of $1.7 trillion in asset purchases, in a bid to lower borrowing costs, boost growth and prevent prices from dropping.
The median forecast of 65 economists surveyed by Bloomberg News projected productivity would rise at a 1 percent pace. Estimates ranged from no change to a 2.6 percent gain.
Unit labor costs, which are adjusted for efficiency gains, dropped at a 0.1 percent rate last quarter after increasing 1.3 percent in the previous three months. They were projected to rise 0.6 percent, according to the survey median.
Employee compensation per hour adjusted for inflation fell 0.8 percent in the third quarter from the same time last year.
“We could be in for a period of wage deflation, which would be a serious problem for the Fed,” said Zentner.
More Claims
Another Labor Department report showed the number of claims for unemployment insurance payments rose by 20,000 to 457,000 in the week ended Oct. 30, exceeding the median forecast of economists surveyed. The increase more than offset an 18,000 decrease the prior week, dashing hopes firings were abating.
A lack of jobs shows why productivity “ is a double-edged sword,” said John Herrmann, a senior fixed income strategist at State Street Global Markets in Boston. “On one hand, it slows the pace of hiring” in the near-term, he said, “but it’s a strong plus for business operating results, which in the long run translates into job growth.”
Republicans on Nov. 2 gained at least 60 seats in the House of Representatives, capitalizing on concern about unemployment and government spending and delivering a rebuke to President Barack Obama’s domestic agenda. Democrats retained control of the Senate by a slimmer margin then they previously had.
Hours, Output
The productivity report showed the number of hours worked rose at a slower pace last quarter even as output accelerated, showing companies were focused on streamlining operations through new technologies rather than on increasing staff. Hours climbed at a 1.1 percent pace after increasing at a 3.5 percent pace from April through June. Output rose at a 3 percent pace, up from 1.6 percent the prior quarter.
Newell Rubbermaid Inc., which makes and markets a range of products including housewares and tools, is among companies focusing on improving efficiency rather than raising prices to make up for increasing material expenses.
“We’re looking to productivity to offset most of the inflation in raw materials and input costs,” Juan Figuereo, chief financial officer at the Atlanta-based company said on an Oct. 29 teleconference. “We haven’t really had to rely on pricing.”
Corporate profits climbed 37 percent in the second quarter from the same time a year earlier, according to figures from the Commerce Department. Analysts surveyed by Bloomberg predict an average 28 percent gain in third-quarter profit from a year earlier for all Standard & Poor’s 500 companies, and a 36 percent advance for all of 2010.
Job Cuts
United Technologies Corp., the maker of Pratt & Whitney jet engines and Carrier air conditioners, is among companies still cutting jobs while trying to sustain output. The Hartford, Connecticut-based company plans to cut about 3,300 jobs through 2011 as part of cost-reduction efforts previously announced.
The Labor Department may report tomorrow that the unemployment rate held at 9.6 percent in October for a third month, according to the median forecast of economists surveyed by Bloomberg. Private payrolls, which exclude government agencies, rose by 80,000, the survey showed.
To contact the reporter on this story: Bob Willis in Washington at
Bobwillis@bloomberg.net
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So, again, big or, at least, quoted companies do well. The workers? Not so well. How can that be sustainable? This is seriously fucked up.
Productivity in U.S. Rose More Than Forecast in Third Quarter
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