Worker productivity soars, labor costs plummet

Worker productivity, the single biggest factor determining living standards, grew at the fastest pace in nearly six years
in the spring while labor costs fell by the most in nine years, as companies slashed costs to survive the recession.

Increases
in productivity can help boost living standards because companies can increase wages financed by rising output. But during
the recession, companies have been using their productivity gains to bolster their bottom lines as many struggle to stay in
business.

This cost-cutting helped many companies report better-than-expected second-quarter earnings despite falling
sales. But economists worry that such aggressive cuts will make it harder to mount a sustainable recovery. That’s because
the lack of wage growth and shortage of jobs will depress household incomes and make the prospects for a sustained rebound
in consumer spending less likely.

Consumer spending is critical to the recovery since it accounts for about 70 percent
of total economic activity.

The Labor Department said today that productivity, the amount of output per hour of work,
rose at an annual rate of 6.6 percent in the April-June quarter, the largest advance since the summer of 2003. Economists
expected an increase of 6.4 percent, matching the government’s initial estimate last month.

Labor costs fell at an annual
rate of 5.9 percent. That’s the largest drop since the second quarter of 2000, and slightly bigger than the 5.8-percent decline
estimated a month ago.

The slight changes reflected that total output, as measured in productivity terms, did not drop
as much as initially estimated. Hourly compensation, after adjusting for inflation, did not rise as much.

The 6.6-percent
rate of increase in productivity in the second quarter compared with a 0.3-percent rise in the first quarter. It was the largest
quarterly increase since a 9.7-percent jump in the third quarter of 2003.

The 5.9-percent drop in unit labor costs followed
a 5-percent decline in the first quarter.

Businesses producing more with fewer employees means that unemployed Americans
continue to face a dismal job market.