Productivity Growth Beats Consensus--Because Companies Are Benching Employees

US productivity grew by 2.2% in Q1, topping consensus of 1.5% and last quarter’s 1.8% rate. The greater efficiency was attributed to reduced labour costs and fewer hours worked. Translation: employers are cutting back–which won’t help consumer spending trends. Bloomberg:

Slowing sales and soaring expenses for raw materials like fuel prompted companies to trim staff hours by the most in five years last quarter. The weakening job market will probably keep a lid on increases in pay, indicating there is little risk that escalating wages will boost inflation.

“Because of the downturn in the economy, firms are relying more on productivity than increased labour for output,” said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. “This is constructive for the inflation picture.”

But it’s not constructive for the consumer-spending picture, which is a more immediate concern for the market and economy.

 

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