Worker productivity dropped in first quarter

According to a Labor Department report Wednesday, the productivity of U.S. workers fell by nearly an entire percentage point over the first quarter of the year. It is the largest drop in a year.

Revised down from previous reports

Previously, the agency had announced a drop in employee output rate of only 0.5 percent annually. Now it is saying the drop was nearly twice as rapid, at 0.9 percent. Expenses per employee rose at a 1.3 percent rate, which was also reduced from an earlier projection of 2 percent.

The productivity rate dropped because the revised numbers reduced the output of American workers as their work week increased more slowly. These revised figures are the Labor department’s final analysis of the national workforce’s first quarter.

Could be prelude to hiring

Unexpectedly, the drop could be good news for job-hunters; but only if demand rises. The numbers suggest that employers are squeezing too much out of employees and will be forced to hire more if productivity needs to be stepped up.

In an economic slow-down, employers pare down workforces and squeeze more out of a smaller crew. Once the economy picks up steam, more employees are added back on to meet the demands of the marketplace.

Waiting on demand

However, that has not happened yet. The dismal jobs report released June 1 showed that only 69,000 new jobs added to the nation’s workforce during the previous month. That was the fewest added in the previous 12 months.

Joshua Shapiro, chief U.S. economist at MFR Inc., fears, however, that employers will continue asking more and more of already-strained workers for the time being.

“Going forward, the big question is the rate of gain in output growth. If it remains slow, as we feel likely, productivity gains will continue to be constrained.”

Brian Jones, a senior U.S. economist at Societe Generale in New York, agrees:

“If demand remains weak, employers will push the existing workforce harder to boost productivity. We think you’re going to see slower growth, and the breadth of hiring, at least according to purchasing managers, is the weakest it’s been since last December.”

Caution over Europe and China

Employers are also being cautious in this globally-connected economy because of the the European financial crisis and the slowing gains in China.

Sources

Daily Finance
Sacramento Business Journal 
Bloomberg