Posted: Wednesday, September 5th 2012 at 9:24am
US productivity grew at 2.2 pct. rate in spring; competitive ranking down
By The Associated Press
WASHINGTON - U.S. companies got more output from their workers this spring than initially thought but the country's competitive ranking was down again.
Productivity rose at a modest 2.2 percent annual rate in the April-June quarter, largely because employers cut back sharply on hiring.
Most economists expect productivity will slow later this year, a trend that could boost hiring.
The Labor Department said Wednesday that productivity in the second quarter was better than its initial estimate of a 1.6 percent gain.
The main reason for the increase was the government revised growth in the second quarter to an annual rate of 1.7 percent, up from an initial estimate of 1.5 percent.
That led to more output, which boosted productivity. Productivity is the amount of output per hour worked.
Labor costs rose at an annual rate of 1.5 percent, slightly lower than the 1.7 percent initially estimated.
Rising productivity can boost corporate profits. It can also slow job creation if it means companies are getting more from their current staff and don't need to add workers.
Still, there are limits to how much companies can squeeze from their staffs. When that happens, productivity slows and company typically must hire more workers to keep pace with demand.
Economists said they expected productivity will slow from the spring pace for the rest of this year and through 2013. Michael Englund, chief economist at Action Economics, said he was looking for productivity growth at a slight 1 percent or less in 2013.
Peter Newland, senior economist at Barclays, said productivity should slow as companies increase hiring in coming months.
Productivity declined 0.5 percent in the January-March quarter. One reason productivity improved in the second quarter is hiring slowed to just 75,000 jobs a month from April through June. That's down from an average of 226,000 a month in the first quarter.
U.S. employers added 163,000 jobs in July, the best month of hiring in five months. The unemployment rate edged up to 8.3 percent. Hiring probably won't accelerate from that level unless growth picks up or productivity slows, economists say.
The government will release the August employment report on Friday. Economists forecast that the economy added 135,000 jobs last month, and the unemployment rate stayed at 8.3 percent.
The Federal Reserve closely follows changes in productivity and labor costs to make sure that inflation pressures are not getting out of control.
Over the past year, productivity has risen 1.2 percent. That is far below the 3 percent average productivity growth turned in during 2009 and 2010. Those gains were a result of massive job layoffs during the recession as companies slashed costs in the face of falling demand.
Economists said higher productivity is typical during and after a recession. Companies tend to shed workers in the face of falling demand and increase output from a smaller work force. Once the economy starts to grow, demand rises and companies eventually must add workers if they want to keep up.
COMPETITIVE RANKING DOWN AGAIN
The United States' ability to compete on the global stage has fallen for the fourth year running as confidence in the country's politicians continues to decline, an annual survey from the World Economic Forum found Wednesday.
The report found that some aspects of the U.S.'s political environment continue to raise concern among business leaders, "particularly the low public trust in politicians and a perceived lack of government efficiency."
The Forum - which also hosts an annual gathering of global business and political leaders in the Swiss ski resort of Davos every January - ranks a country's competitiveness according to factors such as the state of its infrastructure and its ability to foster innovation.
The survey comes just a day before President Barack Obama addresses the Democratic National Convention in his bid to defeat Republican candidate Mitt Romney in November's election.
A little over a year ago, the United States lost its triple A credit rating from Standard & Poor's after a stand-off between Republicans and Democrats over the raising of the debt ceiling stoked fears of a potential debt default.
"We urge governments to act decisively by adopting long-term measures to enhance competitiveness and return the world to a sustainable growth path," said Klaus Schwab, founder and executive chairman of the World Economic Forum.
Switzerland tops the overall rankings of 144 economies in the Global Competitiveness Report 2012-13 for the fourth consecutive year, followed by Singapore. The Forum said Switzerland's standing rests notably on its innovation and labor market efficiency, as well as the sophistication of its business sector.
Including Switzerland, six northern European countries make up the top 10. Others on the leaderboard include Hong Kong and Japan, while central African country Burundi brings up the rear.
Though northern European countries have consolidated their positions since the financial crisis of 2008, the survey found that those in southern Europe, such as Greece, Portugal, Spain and Italy, continue to suffer from a host of economic problems, including poor access to financing and rigid labor markets. Greece is faring worst of Europe's problem economies and is ranked at 96th.
"Persistent divides in competitiveness across regions and within regions, particularly in Europe, are at the origin of the turbulence we are experimenting today, and this is jeopardizing our future prosperity," said Schwab.
Elsewhere, the Forum found that leading emerging economies are displaying different performances. China, at 29th place, has risen in the rankings and leads the group, while Brazil has moved up to 48th. However, others such as South Africa, India and Russia have fallen.
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