By Bob Willis Feb. 4 (Bloomberg) -- The productivity of U.S. workers probably kept surging in the fourth quarter as companies squeezed more out of remaining staff to boost earnings, economists said before a report today. A measure of employee output per hour rose at a 6.5 percent annual rate, according to the median forecast of 65 economists surveyed by Bloomberg News. Labor costs may have dropped at a 3.5 percent pace. Other reports today may show factory orders increased in December and fewer workers sought jobless benefits last week. Efficiency over the past three quarters may have grown at the fastest pace in five decades as companies slashed worker hours even after sales stabilized, a feat that may be difficult to sustain much longer as demand keeps growing. Lower expenses also help curb inflation, giving the Federal Reserve room to keep the benchmark lending rate near zero in coming months. “Growth together with more productivity creates the foundation for a sustained recovery and contains inflation,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “As workers are added, more likely they’ll be productive workers, which over the long term is positive.” The Labor Department’s productivity numbers are due at 8:30 a.m. New York time. Forecasts ranged from gains of 4.3 percent to 8.5 percent. After growing at an 8.1 percent pace and 6.9 percent rate the previous two quarters, the gain in efficiency in the nine months ended in December would mark the strongest performance since 1961. Fewer Claims Another 8:30 a.m. report from the Labor Department may show initial jobless claims fell to 455,000 from 470,000 the prior week, according to the survey median. Commerce Department data at 10 a.m. may show factory orders in December rose 0.5 percent, according to the median estimate of economists surveyed. An increase would be the eighth in the past nine months. The economy grew at a 5.7 percent annual rate in the fourth quarter, the most in six years, even as employers cut 208,000 workers, indicating those Americans that still had jobs were more efficient. Payrolls may have increased in January for the second time in three months, according to the median forecast of economists surveyed before tomorrow’s monthly employment report. The economy has lost 7.2 million jobs since the recession began in December 2007. Job creation in coming months will begin to slow productivity growth, according to Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. Productivity ‘Unsustainable’ “The productivity gains of 2009 are unsustainable,” LaVorgna wrote yesterday in a note to clients. He said the gains were mainly “the result of rising output amid ongoing labor cuts,” which he said would be reversed as employers begin to hire to meet increased demand. As the economy showed signs of recovery last year, the Standard & Poor’s 500 Index climbed 65 percent from a 12-year low on March 9 through Dec. 31. The index has fallen 1.6 percent so far this year. A record nine-quarter earnings slump for Standard & Poor’s 500 Index companies ended in the final three months of 2009 with a 76 percent increase in profits, according to analyst estimates compiled by Bloomberg. Since Jan. 11, about 79 percent of index companies releasing quarterly results have exceeded the average projection, Bloomberg data show. Less Firing Eaton Corp. is among companies no longer looking to trim staff. The Cleveland-based maker of hydraulics and valves has ended unpaid furloughs and doesn’t plan workforce cuts beyond its 17 percent reduction since 2008 as demand increases. Eaton saved almost $225 million in 2009 through unpaid furloughs of one week per quarter for its 70,000 workers. “The economy has continued to move along the slow recovery path that we thought it would,” Chief Executive Officer Sandy Cutler said Jan. 25 in an interview. As a result, the furloughs were canceled “as of the first of the year,” he said. The news was not as good on the employment front. “There’s going to be a lot of pressure against hiring new people because we need higher volume just to absorb the capacity we’ve got inside of the company,” Cutler said.

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