Rex Nutting at MarketWatch reports on a bit of news that's warmed the cockles of the Dow today:
U.S. companies increased their output in the third quarter even as they slashed working hours, driving productivity up at a 9.5% annual rate in the quarter, the Labor Department estimated Thursday. ...
Productivity is output divided by hours worked. Output rose 4% annualized, while hours worked plunged 5%. Real hourly compensation increased at a 0.2% annual rate.
With productivity high and real compensation low, companies captured the lion's share of the benefits of higher productivity in the form of profits. Inflationary pressures remained very low.
The number of hours worked was the lowest since the first quarter of 1996. However, the economy produced 45% more goods and services in the third quarter of 2009 than it did in 1996.
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In case you're curious, this is part of trend that, with a few hiatuses, has been going on since 1980. Worker productivity rises, company profits rise, and worker compensation stays relatively flat.
The good news is that companies may have squeezed out most of the productivity they can and, if economic growth continues, will need to start hiring again or, at least, boosting the hours of workers who have seen their full-time jobs reduced to part time.
Other indicators this week have been mixed, though still holding to the long-term upward trend that meshes with the 3.5% increase in gross domestic product reported last week. The much-watched ISM manufacturing index rose substantially, and the service sector index also rose but at a much weaker fell slightly instead of making what was expected to be a gain. On the other hand, in a big surprise to observers, the ISM employment index fell.
Also released Thursday were the latest figures for initial and continuing unemployment claims. For the 51st consecutive week, initial claims filed by laid-off workers were above half a million at 512,000. That's better than surveyed economists had expected, a drop of 20,000 over last week, and 135,000 less than at its peak six months ago. A four-week average that irons out volatility and is seen as a better measure also fell. The claims numbers nevertheless continue to indicate an extremely weak labor market.
Economists at RDQ Economics wrote: "If the pace of decline from the peak is maintained, we are still some five months away from claims reaching the level that will signal net job growth." That would put us into March.
Although there are a few contrarians, the general sentiment of analysts is that even when net job growth does begin, whenever that milestone is reached, the pace is likely to be slow. That would mean another "jobless recovery" in which GDP returns to its pre-recession level long before as many people are again employed as had jobs when the recession began. That is what happened in the two most recent, milder recessions of 1990-91 and 2001, breaking a trend dating back to the end of World War II.
Friday morning the Labor Department will release its report on the October employment rate. Economists surveyed by various media outlets, including Bloomberg, estimate that the "headline" rate of unemployment will rise to 9.9% and non-farm payrolls will drop another 150,000 to 175,000. If layoffs are that low, it would be the best performance in 14 months, but still in negative territory, and likely to remain so until 2010.
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A big h/t to Jake at EconoData.
