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WSJ: Productivity, Jobless Claims Rise


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U.S. productivity, or output per hours worked, continued to rise strongly in the fourth quarter of 2009 as the economy's expansion didn't stop many employers from cutting labor costs.

Separately, the number of U.S. workers filing new claims for jobless benefits unexpectedly rose last week in another sign that the labor market has yet to recover even as the economy is expanding. Total claims lasting more than one week, meanwhile, also edged higher.

Nonfarm business labor productivity rose by a seasonally-adjusted annual rate of 6.2% in the October-to-December period, after increasing by a downwardly revised 7.2% in the third quarter of last year, data from the Labor Department showed Thursday.

The figures were slightly below expectations. Economists surveyed by Dow Jones Newswires had predicted a 7.0% increase in fourth-quarter productivity. The third-quarter figure was revised lower from a previous reading of 8.1%.

Companies continued to cut costs at the end of 2009 even as the economic recovery gained steam, meaning they are getting more from existing work forces. Nonfarm output rose at a 7.2% annual rate in the fourth quarter while hours worked increased by 1.0%, the first rise in hours worked in more than two years, the report showed.

Overall, productivity has risen by 5.1% over the last four quarters, more than during any similar period since the first quarter of 2001 to the first quarter of 2002. That was when the economy was recovering from the internet bubble burst.

The Labor Department also reported that unit labor costs -- a measure of what it costs firms to pay workers for a single unit of output they produce -- fell at a 4.4% annual rate in the last three months of 2009, following a 1.5% decline in the third quarter. Economists had forecast a 3.5% drop in the final quarter of last year. The third-quarter figure was revised from a previous reading of -2.5%.

Big productivity gains are common at the end of recessions and the beginning of recoveries. The usual pattern is productivity grows first, then employment rises, and finally wages increase.

U.S. economic growth surged at the end of 2009, with gross domestic product rising an annualized 5.7% rate in the fourth quarter, the government's first estimate of fourth-quarter growth showed last week. However, most of the gain was driven by inventories and the economy's expansion is yet to translate in employers hiring workers.

The jobs report due for release on Friday is expected to show that employers stopped shedding jobs in January, but the unemployment rate is still forecast to have inched higher to 10.1% last month.

The productivity gains should help prevent an outbreak of inflation, making the Federal Reserve more comfortable with keeping short-term interest near zero to support the economy so that unemployment can come down.

To counter the financial crisis, the Fed has slashed interest rates to a record low and pumped $1 trillion into the financial system through loans and securities purchases. In normal times, so much monetary stimulus would have pushed consumer prices much higher.

Last week, the Fed's policy making arm was more upbeat on the U.S. economy's outlook, but repeated a vow to keep rates near zero for several more months to support the recovery.

The productivity of workers is a linchpin to an economy's health and growth potential. The U.S. economy went through a productivity drought in the 1970s and "80s and a resurgence in the late "90s. It slowed sharply between 2004 and 2008.

In a separate report Thursday, the Labor Department said new claims for jobless benefits unexpectedly rose last week, in another sign that the labor market has some way to recover.

Initial claims for jobless benefits rose by 8,000 to 480,000 in the week ended Jan. 30, according to the Labor Department's weekly report Thursday. The previous week's level was revised upward to 472,000 from 470,000. Economists surveyed by Dow Jones Newswires expected initial claims to decrease by 10,000.

The four-week moving average, which aims to smooth volatility in the data, also increased for the week ending Jan. 30. The Labor Department said the four-week moving average went up by 11,750 to 468,750 from the previous week's revised average of 457,000.

Thursday's report is considered by some economists to be the first "clean" data set in more than a month. Two weeks ago, claims unexpectedly spiked due to a holiday backlog in the processing of claims. Wrightson ICAP in a note Wednesday anticipated that these latest numbers should have no "obvious distortions in them." A Labor Department economist Thursday seemed to support that view. He also said that no states cited increment winter weather as a factor affecting last week's claims.

Thursday's spike in claims come just one day before the Labor Department is slated to release its January jobs report. Economists expect nonfarm payroll numbers to remain flat, although they are also forecasting a slight increase in the unemployment rate from 10 to 10.1%. The December report showed a decrease of 85,000 jobs.

Labor market conditions have led policymakers in Washington to push job creation to the top of their political agenda for 2010.

President Barack Obama outlined proposals in his fiscal year 2011 budget plan earlier this week that he hopes will help improve labor market conditions. He proposed giving small businesses that hire new workers or raise wages a tax credit, for instance, and he also called for a doubling of U.S. exports over the next five years.

The U.S. Senate, meanwhile, is also working on a jobs package that Senate Majority Leader Harry Reid (D, Nev.) has said will entail small business tax credits on expensing, a tax credit for hiring workers, bonds for state infrastructure projects, and a one-year extension of highway funding.

In the Labor Department's Thursday report, the number of continuing claims--those drawn by workers for more than one week in the week ended Jan. 23 -rose by 2,000 to 4,602,000 from the preceding week's revised level of 4,600,000.

The unemployment rate for workers with unemployment insurance for the week ended Jan. 23 was 3.5% -- unchanged from the prior week's unrevised rate of 3.5%.

The largest increase in initial claims for the week ended Jan. 23 was in Oregon. The largest decrease in initial claims occurred in California.

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