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Employers Stretch Their Workers To The Limit

Has your boss been asking you to do more and more work because she just doesn't want to hire enough people? Help may be on the way.

The government reported Thursday that the productivity of U.S. workers fell in the first quarter for the first time in a year. That's because companies hired workers faster than they could increase the volume of goods and services they produced.

If that trend keeps up, it could bode well for job seekers.

The 0.5 percent drop was the first decline since a 0.3 percent pullback in the second quarter of last year and the largest since a 1 percent drop at the start of 2011.

Economists expect productivity growth will remain weak in 2012. JPMorgan is forecasting productivity gains of just 0.7 percent this year as companies add more workers. That compares with cumulative gains of 7.7 percent since the recession began in December 2007.

The drop comes after a string of steady gains in productivity, as employers slashed their payrolls during the 2007 recession but squeezed more output from thinner staffs. Some of those gains came from investment in technology and other efficiencies. Some of it came from asking workers - fearful of losing their jobs with the unemployment rate at 8.2 percent -- to work harder and put in longer hours.

But employers have apparently wrung about as much work as they could from their existing employees. To increase output, they've had to hire back some of the people they laid off during the recession.

"Firms are finding it harder to improve the efficiency of their existing work forces," said Paul Ashworth, chief U.S. economist at Capital Economics

In the first quarter, employers added about 635,000 new jobs to their payrolls, even though the economy grew at an anemic 2.2 percent annual rate.

It's not clear whether that hiring pace will continue; Friday's monthly jobs report will give economists a clearer picture.

Some Federal Reserve officials, including Fed Chairman Ben Bernanke, believe the strong gains in the employment data over the winter came after companies slashed their work forces too far. If so, Bernanke said, the hiring surge could only be temporary unless the economy begins growing more quickly and creates more demand. Economists, including Fed forecasters, aren't expecting that to happen.

That may be why hiring slowed in March, when the economy added just 120,000 workers. That's about half the monthly average from December through January.

Economists are looking for Friday's report to show job gains in April of about 160,000. That's better than March, but not as strong as the winter pace.

The unemployment rate is expected to stay unchanged at 8.2 percent.

Even as they've been working their employees harder, companies have been slow to hand out raises. Hourly compensation was up just 1.5 percent in the first quarter. Overall labor costs rose 2 percent in the first quarter, down from a 2.7 percent rise in the fourth quarter.

Some businesses may have also reached the limits of how much more efficiency they can wring from their workers with investments in new equipment and technology. Last week's report on gross domestic product showed a sharp slowdown in business investment in equipment and software, which rose just 1.7 percent in the first three months of this year, compared with a 7.5 percent gain in last year's fourth quarter.

Manufacturing companies, though, are still seeing the benefits of the investments they've made in producing goods more efficiently. Thursday's data showed that manufacturing productivity rose by 5.9 percent during the first quarter, with output surging by 10.8 percent.

Those investments in efficiency seem to be paying off for factory owners. Their unit labor cost - the amount of money it costs to a pay a worker to make each widget - fell by 4.2 percent

Manufacturers also added more hours - up 4.6 percent in the quarter - to keep up with increased demand. Much of that is coming from a strong rebound in car sales, as consumers scrap their aging clunkers for more fuel-efficient models.


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