Productivity up in summer months while labor costs fell

By Martin Crutsinger AP Economics Writer WASHINGTON (AP) -- U.S. workers increased their productivity over the summer by the most in a year and a half but the gain was smaller than initially thought. A more productive and less-costly work force can boost corporate profits. But unless companies see more demand, they're unlikely to step up hiring. Productivity rose at an annual rate of 2.3 percent in the July-September quarter, the Labor Department said. That was slower than the 3.1 percent the government estimated a month ago. Labor costs fell at a 2.5 percent rate, a slightly larger decline than the 2.4 percent drop first estimated. The downward revision reflected slower economic growth in the third quarter. The government said total output grew at an annual rate of 2 percent, less than the 2.5 percent initially estimated. Productivity is the amount of output per hour of work. It fell during the first six months of the year and labor costs increased. That was largely because consumers cut back on spending in the face of higher food and gas prices, which slowed overall economic growth. Over the summer, consumers increased their spending at triple the rate seen in the spring. That helped the economy expand, which likely boosted worker productivity. When demand rises and productivity is low, it's usually a sign that businesses have reached the limit on the amount of work they can squeeze out of their work forces. That often leads some to hire more workers, if they want to grow. But their hiring plans also depend on demand for their products. Economists worry the demand from this summer can't be sustained without higher pay and more jobs. In October, consumer spending grew at the slowest pace in four months. At the same time, Americans earned more after five straight months of paltry pay increases. The economy added 80,000 jobs in October, and the unemployment rate dipped to 9 percent. It was the 13th straight month of hiring gains. Still, the additional jobs were fewer than the roughly 125,000 that are needed each month just to keep up with population growth. The government reports Friday on November job growth and unemployment. Economists expect productivity will slow over the next couple of years while labor costs rise. Forecasters with the National Association for Business Economics predict that productivity growth will slow to 1 percent this year compared to growth of 4.1 percent in 2010. Published: Thu, Dec 1, 2011