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Productivity slows; hiring uncertain

Monte Miller climbed on an Automated Spar Assembly Tool to work on a portion of the wing assembly of a Boeing 777 Freighter. Monte Miller climbed on an Automated Spar Assembly Tool to work on a portion of the wing assembly of a Boeing 777 Freighter. (Elaine Thompson/File/Associated Press)
By Martin Crutsinger
Associated Press / May 7, 2010

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WASHINGTON — Companies are reaching a point where they can no longer squeeze more work out of leaner staffs, normally a sign that a hiring rebound could be near. But the growing European debt crisis is unsettling the global economy and may affect employers’ hiring plans.

US productivity grew at an annual rate of 3.6 percent in the first quarter, down sharply from the previous three quarters. Analysts predict that productivity, the amount of output per hour of work, will slow even further.

“Companies are close to the limits of what they can do with their existing staff. They are going to have to start rehiring people,’’ said Nigel Gault, chief US economist at IHS Global Insight.

But fears that Greece’s debt problems could spread to other countries sent Wall Street into a free fall yesterday. The Dow Jones industrial average plunged nearly 1,000 points before recovering to close at a 347-point loss.

If the crisis drags on, it could leave employers less confident about the economy.

Sung Won Sohn, an economics professor at the Smith School of Business at California State University, predicted that the European debt crisis will continue to keep global markets on edge.

“The problem is that Europe took too long to rescue Greece,’’ he said. “Now we are talking about a crisis of confidence and when confidence is shaken like this, it takes a long time to stabilize.’’

The job market is showing gradual improvement, according to a second Labor report. Applications for unemployment benefits dropped for a third straight week, decreasing by 7,000 to 444,000.

Still, economists predict that the April jobless number, to be released today, will show unemployment stuck at 9.7 percent for a fourth straight month.

The economy has been growing since last summer, though firms have been slow to hire back workers. Many have opted instead to push their slimmed-down workforces to produce more. But Gault and other analysts said they look for companies to start edging back into hiring.

“Firms are reaching the limits of worker endurance,’’ said Sal Guatieri, an economist at BMO Capital Markets.

Payroll jobs increased by 162,000 in March, the best showing in three years. Many economists were looking for a gain of around 200,000 in April.

Adding to the picture of an improving economy were reports that major retail chains were busy in April. That suggests a jump in consumer spending in the first quarter was continuing in April.

Economists said the rehiring of workers will help sustain the recovery by boosting overall incomes. That would allow households to increase consumer spending, which accounts for 70 percent of economic activity. Unless incomes start rising, consumer spending may not rise enough to strengthen the recovery.

Companies’ unit labor costs — which measures their hourly cost of production — fell 1.6 percent. That followed declines of 5.6 percent in the fourth quarter and 7.6 percent in the third quarter.