By Bob Willis March 4 (Bloomberg) -- The productivity of U.S. workers kept surging in the fourth quarter as companies squeezed more out of remaining employees to boost earnings. A measure of employee output per hour rose at a 6.9 percent annual rate, capping the biggest one-year gain since 2002, revised figures from the Labor Department showed today in Washington. Labor costs dropped at a 5.9 percent pace, more than anticipated, and fell 1.7 percent for all of 2009, the biggest drop since records began six decades ago. Productivity grew as companies lifted profits by slashing payrolls even as demand stabilized, a performance that will be difficult to repeat as the economy recovers. Lower labor costs will help contain inflation, giving the Federal Reserve margin to keep lending rates near zero in coming months. “Businesses have done a superb but ultimately unsustainable job of utilizing the labor resources at their disposal,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, who forecast a 7.1 percent gain. “They’ve experienced rising output level without increasing employment to a degree that can’t persist.” Economists had forecast productivity would rise at a 6.3 percent annual pace, according to the median of 61 forecasts in a Bloomberg News survey. Estimates ranged from gains of 5.7 percent to 7.1 percent. Unit labor costs, which are adjusted for efficiency gains, were projected to drop 4.5 percent. Stock-index futures rose after a separate report showed claims for U.S. jobless benefits dropped last week from a three- month high. Futures on the Standard & Poor’s 500 Index expiring this month increased 0.1 percent to 1,120 at 8:51 a.m. in New York. Fewer Claims Initial jobless applications fell by 29,000 to 469,000 in the week ended Feb. 27, in line with the median forecast of economists surveyed by Bloomberg News. The number of people receiving unemployment insurance decreased to the lowest level in a year, while those receiving extended benefits climbed. Today’s revisions to labor costs reflected in part the updated income figures the Commerce Department issued in its latest estimate of fourth-quarter gross domestic product released last week. Third-quarter labor expenses were updated to show a 7.6 decrease at an annual rate compared with the 1.5 percent decrease previously estimated. For all of 2009, productivity increased 3.8 percent. The economy grew 5.9 percent in the fourth quarter, even as employers cut 310,000 workers, indicating those Americans that still had jobs were more efficient. The fourth quarter’s growth rate was the strongest in more than six years. More Hours Hours worked rose at a 0.6 percent pace in the fourth quarter, indicating companies were already having difficulty meeting demand with existing staff. Output climbed at a 7.6 percent rate. Compensation for each hour worked increased at 0.6 percent annual pace after decreasing at a 0.4 percent pace in the prior quarter. Among manufacturers, productivity surged at a 6.6 percent pace. Payrolls may have decreased by 65,000 workers last month, more than the prior decline of 20,000, according to the median forecast of economists surveyed before tomorrow’s monthly employment report. The economy has lost 8.4 million jobs since the recession began in December 2007. The robust productivity growth will wane in coming months as job creation kicks in, said Robert Dye, a senior economist at PNC Financial Services Group in Pittsburgh. Unsustainable Gains “The productivity gains will not be sustained because companies are operating at a bare minimum in terms of employment and they will need to start increasing employment to increase output and capture additional revenue,” said Dye. Carmakers are beginning to call back laid off workers. General Motors Co. may fill most of the 5,500 jobs created by its $1.4 billion retooling of 18 U.S. factories with laid-off workers, the automaker’s manufacturing and labor chief said on Feb. 23. The company has 5,000 to 6,000 workers on indefinite layoff, Diana Tremblay, the GM executive, said in an interview. Those employees have first rights to any openings from the factory upgrades, including a third shift with 1,200 positions in Lordstown, Ohio, announced today, she said. “People that we have that are laid off will have the first opportunity for the jobs so it really depends on how many people decide they want to take the jobs,” Tremblay said. “Then we would fill up the rest of the workforce with new hires.” A record nine-quarter profit slump for Standard & Poor’s 500 Index companies ended in the final three months of 2009 with a 181 percent increase in earnings, according to data compiled by Bloomberg. Almost 73 percent of S&P 500 companies have topped the average analyst estimate, the second-highest quarterly proportion in Bloomberg data going back to 1993. To contact the report on this story: Bob Willis in Washington at bwillis@bloomberg.net

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