BL: U.S. Productivity Climbs, Factory Orders Grow as Jobless Claims Increase
By Bob Willis
Feb. 4 (Bloomberg) -- Productivity in the U.S. surged in the fourth quarter and factories received more orders in December than anticipated, showing companies are keeping payrolls lean to rebuild profits.
Employee output per hour rose at a 6.2 percent annual rate at the end of 2009, capping the biggest annual gain in six years, the Labor Department said today in Washington. Factory bookings climbed 1 percent for a second month, and more workers sought jobless benefits last week, other reports showed.
Efficiency in the last nine months of 2009 soared at the fastest pace since 1966 as companies slashed worker hours even after sales stabilized, a feat that may be difficult to sustain much longer as demand continues to grow. The gains cut labor expenses, helping curb inflation and giving the Federal Reserve room to keep the benchmark lending rate near zero.
“Firms are squeezing existing workforces to their limits,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “Cost pressures are negligible. We still think we’re on the cusp of a hiring recovery,” he said, although it “has been a little slower than we had hoped.”
Claims for unemployment insurance unexpectedly increased last week, raising concern an improvement in the job market was stalling, other figures from the Labor Department showed. Applications rose to 480,000 in the week ended Jan. 30, the most in seven weeks, from 472,000 the prior week.
Stocks Drop
Stocks dropped for a second day, extending earlier losses, following the increase in joblessness and on concern that Greece, Spain and Portugal will struggle to curb government deficits. The Standard & Poor’s 500 Index fell 2 percent to 1,075.03 at 11:28 a.m. in New York. Treasury securities rose.
Economists had forecast productivity would rise at a 6.5 percent annual pace, according to the median of 65 forecasts in a Bloomberg News survey. Estimates ranged from gains of 4.3 percent to 8.5 percent. Unit labor costs, which are adjusted for efficiency gains, fell at a 4.4 percent pace last quarter, exceeding the 3.5 percent drop projected by the survey median.
For all of 2009, productivity increased 2.9 percent, the biggest gain since 2003. Labor expenses declined 0.9 percent, the most since 2002.
“It bodes well for reducing labor costs and keeping corporate profits robust,” said Robert Dye, a senior economist at PNC Financial Services Group Inc. in Pittsburgh. “Still, it’s a double-edged sword, showing how weak labor markets are.”
Economic Growth
The economy grew 5.7 percent in the fourth quarter, even as employers cut 208,000 workers, indicating those Americans who still had jobs were more efficient. The fourth quarter’s growth rate was the strongest in six years.
Among manufacturers, productivity surged at a 7.8 percent pace in the fourth quarter.
The increase in factory orders in December was the fourth in a row, figures from the Commerce Department showed. Excluding transportation, bookings increased 1.2 percent.
Economists forecast a 0.5 percent rise in orders after a previously reported 0.6 percent gain for November, according to the survey median.
“If there’s one sector of the economy to point to that says things are recovering quite nicely, it’s factories,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “There’s foreign demand, but also both domestic and foreign businesses are focused on improving productivity and that means greater capital spending.”
Payroll Forecast
Payrolls may have increased by 15,000 workers last month, the second gain in the past three months, according to the median forecast of economists surveyed before tomorrow’s monthly employment report. The economy has lost 7.2 million jobs since the recession began in December 2007.
A record nine-quarter earnings slump for Standard & Poor’s 500 Index companies ended in the final three months of 2009 with a 76 percent increase in profits, according to analyst estimates compiled by Bloomberg. Since Jan. 11, about 79 percent of index companies releasing quarterly results have exceeded the average projection, Bloomberg data show.
Eaton Corp. is among companies no longer looking to trim staff. The Cleveland-based maker of hydraulics and valves has ended unpaid furloughs and doesn’t plan workforce cuts beyond its 17 percent reduction since 2008 as demand increases. Eaton saved almost $225 million in 2009 through unpaid furloughs of one week per quarter for its 70,000 workers.
“The economy has continued to move along the slow recovery path that we thought it would,” Chief Executive Officer Sandy Cutler said Jan. 25 in an interview. As a result, the furloughs were canceled “as of the first of the year,” he said.
The news was not as good on the employment front.
“There’s going to be a lot of pressure against hiring new people because we need higher volume just to absorb the capacity we’ve got inside of the company,” Cutler said.
To contact the report on this story: Bob Willis in Washington at bwillis@bloomberg.net
Last Updated: February 4, 2010 11:30 EST
News 
Market Data 
Discover 
AI
