Amount of goods and services increase, costs and real wages fall
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — U.S. businesses produced goods and services more efficiently in the third quarter than originally believed, mainly by boosting output while keeping labor and other costs down.
The ability of companies to keep labor costs corralled makes it easier for the Federal Reserve to continue efforts to prop up the economy without stirring inflation, a good thing for bondholders.
Yet it also reflects the reluctance of business to hire or raise wages in a slow-growing economy, giving unemployed Americans little comfort and leaving little room for consumers to sharply boost spending. Consumer spending accounts for as much as 70% of U.S. economic activity.
Productivity rose a revised 2.9% in the July-to-September period, up from a first reading of 1.9%, the Labor Department said Wednesday. Figures for productivity are revised twice after the initial report is released.
Economists surveyed by MarketWatch had expected productivity to be revised up to 2.8%, compared to a 1.9% gain in the second quarter.
The amount of goods and services produced, known as output, was revised up to 4.2% from 3.2%. That accounted entirely for the big upward move.
The number of hours employees worked was unchanged at a 1.3% increase.
Unit-labor costs sank 1.9% vs. an originally reported 0.1% increase. Unit-labor costs reflect how much it costs a business to produce one unit of output, such as a ton of coal or a crate of Louisville Slugger baseball bats.
Unit-labor costs have edged up 0.1% over the past 12 months, the lowest reading in two years.
The amount of hourly pay for employees rose 0.9% in the third quarter, down from a prior estimate of 1.8%. Hour wages have risen just 1.8% in the past 12 months.
“Companies remain cautious about a global slowdown and the pending fiscal cliff, and are likely holding back hiring and wage increases until they get more clarity,” said economist Yelena Shulyatyeva of BNP Paribas.
After accounting for inflation, however, the picture looks even worse. Hourly wages dropped 1.4% last quarter instead of a 0.4% decline. And the gain for the second quarter was reduced to 0.6% from 2.8%.
Over the past 12 months, inflation-adjusted wages have risen a scant 0.1%. That largely reflects a modest increase in inflation, largely because of spiking oil costs, that’s offset the slow growth in earnings.
The upshot: American workers are treading water.
So far this year, productivity has expanded at an annual 1.4% pace. Since 1947, productivity growth has averaged about 2.2% annually.
The rate of productivity, combined with population growth, suggests the ceiling for the U.S. economy’s growth in 2012 is around 2%. That’s not fast enough to rapidly reduce the nation’s 7.9% unemployment rate.
Higher productivity is the key to a nation becoming richer because it results in bigger profits for businesses and eventually larger paychecks for workers. Yet recent gains in productivity have not benefited workers much.
Low productivity over time is a sign of poor or declining economic health.
Quarterly productivity data is frequently subject to large revisions and economists caution that it can take several quarters to establish a trend.
In the manufacturing sector, meanwhile, the decline in productivity was revised down to 0.7% from 0.4%.
In a separate report Wednesday, the payroll-processing firm ADP said hiring declined in November, partly because of Hurricane Sandy. Read about drop in ADP employment.
