Worker Productivity Declines, Labor Costs Jump

[Lostinoz]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aC1YYYHuHtxs&refer=home

U.S. Worker Productivity Declines, Labor Costs Jump (Update1)
By Shobhana Chandra

March 5 (Bloomberg) -- U.S. worker productivity in the fourth quarter unexpectedly fell as the economy shrank even faster than companies cut jobs and hours.

Productivity, a measure of employee output per hour, fell at a 0.4 percent annual rate, the first decrease in a year and much less than the 3.2 percent gain estimated last month, the Labor Department said today in Washington. Labor costs climbed 5.7 percent, more than prior projections.

The figures, coming a day before the government’s employment report, indicate companies will keep cutting jobs to contain escalating losses. Deteriorating labor and housing markets will sap consumer spending further, magnifying the risk this recession may turn out to be the worst in the postwar era.

“Companies were definitely quick to reduce employment but output fell a lot more sharply last quarter,” Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “The job losses will be very large as the economy may contract even more this quarter.”

Treasuries rose, driving yields lower. The benchmark 10-year note yielded 2.88 percent as of 8:34 a.m. in New York, down 10 basis points from yesterday. Stock-index futures were lower.

Economists projected productivity would rise at a 1 percent pace, according to the median of 60 forecasts in a Bloomberg News survey. Estimates ranged from an increase of 2.6 percent to a drop of 0.5 percent.

Unit labor costs, which are adjusted for efficiency gains, were projected to jump 3.8 percent. Last month, Labor estimated the increase in expenses would be 1.8 percent.

Jobless Claims

More than 600,000 Americans filed first-time claims for unemployment benefits last week for a fifth straight time as companies kept trimming costs, other figures from Labor also showed. First-time unemployment applications decreased by 31,000 to 639,000 in the week that ended Feb. 28 from a 26-year high of 670,000 the prior week. The number of people staying on benefit rolls eased from a record.

Hours worked fell at an 8.3 percent pace, the biggest drop since 1975, the productivity report showed. Output fell at an 8.7 percent rate, the most since 1982.

Hourly pay adjusted for inflation surged at a 16 percent rate, the biggest gain since records began in 1947.

Compared with the fourth quarter of 2007, productivity rose 2.2 percent, down from a previous estimate of 2.7 percent. Efficiency has increased at a 2.5 percent annual average pace since 1995. Labor costs were up 1.8 percent year-over-year.

For all of 2008, productivity climbed 2.8 percent, the biggest gain since 2003.

Factory Productivity Drops

Among manufacturers, productivity slumped at a 4 percent pace, the biggest drop since records began in 1987.

Labor may report tomorrow that February payrolls fell by 650,000, the most since 1949, according to the Bloomberg survey median. The unemployment rate probably jumped to 7.9 percent, the highest since 1984.

Already, the economy has lost 3.6 million jobs since the recession began in December 2007, marking the biggest employment slump in any postwar economic downturn.

The economy “deteriorated further” over the last two months, while “unemployment is up in “all areas, reducing or eliminating upward wage pressures,” the Federal Reserve said in its Beige Book regional business survey released yesterday.

Dell, Macy’s

Companies are redoubling efforts to control expenses. Dell Inc., the second-largest maker of personal computers, has trimmed jobs and sent about 25 percent of its manufacturing to partners to save $3 billion in costs by 2011. Macy’s Inc., the second- largest U.S. department-store company, is eliminating 7,000 jobs and slashing its dividend.

General Motors Corp., surviving with U.S. federal loans, plans to cut 47,000 more positions globally and trim its brands.

“We expect these challenging conditions will continue through 2009,” GM Chief Executive Officer Rick Wagoner said in a statement on Feb. 26.

In the 1990s, former Fed Chairman Alan Greenspan was one of the first to recognize productivity was accelerating because of the increased use of computers and the Internet, and that the improvement would contain inflation even as the economy gained strength and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999.

[Visinedrops]

A factory employs 100 workers, and 15 managerial positions. The workers are all union, making anywhere from $45-$60 per hour. The factory needs every single one of the 100 workers to be completely productive, however, they're losing money. They lay off 25 of those workers.
Now, 75 employees have to do the work of 100. This causes production lines to slow, making production less, resulting in fewer items for sale. The factory is now producing less product to sell, making less money, and is forced to lay off another 10 employees. Refer back to the original scenerio and see how much this company produces with even less employees.

A home improvement store, such as Lowe's, employs 118 people total. (as the one I used to work at) in the middle of summer. They need to cut back on wages to save money on the bottom line, so they reduce the part-time employees' hours to 10 per week, putting a strain on the full time employees. The sales specialists in each department no longer have the ability to focus completely on making specialty sales, because they have to pick up the slack from the part-timers, which reduces the amount of income per department.

The less workers you have, the less product you will sell because more time is spent making sure other tasks are done, resulting in less income. Fix it by hiring more unskilled labor to do the menial tasks, and allow the specialists to focus ONLY ON THE CUSTOMER.

Oh yeah...I forgot...the corporate people don't want to take a pay cut. That's why businesses (and our economy) will eventually fail. Just my .02

[Brosia]

U.S. worker productivity in the fourth quarter unexpectedly fell as the economy shrank even faster than companies cut jobs and hours.

why is it unexpected? People are worried, depressed, anxious... of course productivity is going to fall off.
The "experts" just aren't making sense these days.

[Lostinoz]

Oh yeah...I forgot...the corporate people don't want to take a pay cut. That's why businesses (and our economy) will eventually fail. Just my .02

Yeah, I like how the latest personal income report showed that wages had increased, though if you looked at it close enough, you would see that it was mostly government positions which had increased in pay scale. :rolleyes:

A quick story that happened to me a few years ago..

I was cleaning houses "professionally." A lawyer wanted me to clean his house from top to bottom, attic, basement, etc. I knew it would be a good 2-day job if not more. I told him I would do it for $15.00 an hour.

He said, "That is just WAY too high." I replied, "Oh, how much do you charge per hour?" He sputtered, "Uh, I am a professional." I just smiled and said, "So am I." Btw, I got the job because his wife told him to hire me. :D

That said, I didn't really care how much he charged per hour, I don't suffer from class envy at all, it was just the WAY he said that to me that ruffled my feathers a bit. ;)

[Lostinoz]

why is it unexpected? People are worried, depressed, anxious... of course productivity is going to fall off.
The "experts" just aren't making sense these days.

Yes, I don't hold much value in the "experts" as every week something they did not expect, happens. :D They only look at paper and never see the individuals involved in what is happening in our economy.