U.S. companies got more output from their workers this spring than initially estimated, the government reported Wednesday, but the modest gain in productivity may mean that hiring could remain slow this year. The Labor Department said productivity—the amount of output per hour of work—increased at an annual rate of 2.2 percent in the April-June quarter, up from an initial estimate of a 1.6 percent gain. Labor costs rose at a 1.5 percent annual rate, slightly lower than the 1.7 percent initially estimated. Rising productivity can increase corporate profits, but it also can slow job creation if it means companies are getting more output from their current staff and do not need to hire more workers. Still, there are limits to how much companies can achieve from their current staffs. When those limits are reached, productivity slows and companies typically must add workers to keep pace with demand. Productivity declined 0.5 percent in the first quarter. One reason productivity improved in the second quarter is that hiring slowed to only 75,000 jobs per month from April through June, down from an average of 226,000 per month in the first quarter. Over the past year, productivity has risen 1.2 percent, far below the 3 percent average productivity growth seen in 2009 and 2010. The gains were a result of massive job layoffs during the recession as companies cut costs amid plunging demand. Economists say higher productivity is typical during and after a recession. Companies tend to lay off workers amid declining demand and increase output from a smaller workforce. After the economy starts to grow, demand rises and companies eventually must add workers.
