Productivity Gains Are Bad News For Job Seekers

WASHINGTON (AP) — Companies across the economy are finding ways to do more with fewer workers, dimming hopes that hiring will take off anytime soon.

Employers became leaner and more efficient in the third quarter. Wages, meantime, remain flat or falling. The result is that productivity — output per hour of work — jumped at the fastest pace in six years.

The good news for companies, though, is bad news for the jobless. As long as companies can get their workers to produce more, they have little reason to hire — at least until consumer spending picks up. And the squeeze on incomes could depress consumer spending, putting the economic recovery at risk.

Productivity rose at an annual rate of 9.5 percent in the July-September quarter, the Labor Department said Thursday. That was much better than the 6.4 percent gain economists had expected. Unit labor costs fell at a 5.2 percent rate.

Still, while companies aren't doing much hiring, they're also not cutting as many workers. The number of newly laid-off workers filing claims for unemployment benefits last week fell to the lowest level in 10 months

The 9.5 percent productivity rise followed a 6.9 percent surge in the second quarter and was the fastest since a 9.7 percent increase in the third quarter of 2003.

The gain reflected that the overall economy, as measured by the gross domestic product, grew for the first time in a year — at an annual rate of 3.5 percent. The higher output came as companies continued to lay off workers. That meant employers produced more with fewer workers.

The 5.2 percent drop in unit labor costs marked the third straight decline and was larger than the 4 percent decrease economists were expecting.

Productivity is the key ingredient to rising living standards. It lets companies pay their workers higher wages. The increases are financed by the increased output rather than higher costs for products.

But companies this year, struggling to cope with the longest recession since the 1930s, have boosted output while continuing to lay off workers. The falling labor costs also reflect that many workers still fortunate enough to have jobs have seen their wages squeezed as companies struggle to bolster their bottom lines.

In a separate report, the Labor Department said first-time claims for jobless benefits last week fell by 20,000 to a seasonally adjusted 512,000. That's better than economists' estimates of 523,000.

Economists closely watch initial claims, which are considered a gauge of the pace of layoffs and an indication of employers' willingness to hire new workers.

On Wall Street, the better-than-expected jobless claims report and news that retailers posted their second straight month of sales gains in October buoyed investors. The Dow Jones industrial average added about 180 points in morning trading, and broader indexes also gained.

The four-week average of jobless claims, which smooths fluctuations, dropped to 523,750, its ninth straight decline. That's 135,000 below the peak for the recession, reached in early April.