Jump in Productivity Puts Job Creation in Doubt

Companies across the economy are finding ways to do more with fewer workers, dimming hopes that hiring will take off anytime soon.

Employers became leaner and more efficient in the third quarter. Wages, meantime, remain flat or falling. The result is that productivity — output per hour of work — jumped at the fastest pace in six years.

The good news for companies, though, is bad news for the jobless. As long as companies can get their workers to produce more, they have little reason to hire — at least until consumer spending picks up. And the squeeze on incomes could depress consumer spending, putting the economic recovery at risk.

Productivity rose at an annual rate of 9.5 percent in the July-September quarter, the Labor Department said Thursday. That was much better than the 6.4 percent gain economists had expected. Unit labor costs fell at a 5.2 percent rate.

The productivity rise, which followed a 6.9 percent surge in the second quarter, was the fastest advance since a 9.7 percent increase in the third quarter of 2003.

The gain reflected the fact that the overall economy, as measured by the gross domestic product, grew for the first time in a year — at an annual rate of 3.5 percent. The higher output came as companies continued to lay off workers. That meant employers produced more output with fewer workers.

The 5.2 percent drop in unit labor costs in the third quarter marked the third straight decline and was larger than the 4 percent decrease economists were expecting.

Productivity is the key ingredient to rising living standards. It lets companies pay their workers higher wages. The increases are financed by the increased output rather than higher costs for products.

But companies this year, struggling to cope with the longest recession since the 1930s, have boosted output while continuing to lay off workers. The falling labor costs also reflect that many workers still fortunate enough to have jobs have seen their wages squeezed as companies struggle to bolster their bottom lines.