Diane Swonk, Chief Economist
Nov. 5, 2009 – 8:00 a.m. CT
Productivity Surges and Costs Plummet
Productivity growth surged at a 9.5% rate in the third quarter and employment costs plummeted as companies got workers to do more for less.
This helps explain the better-than-expected profit performance of the third quarter and could be a precursor to hiring. Large employers appear to be close to squeezing the maximum out of their current workers and now have the cash on their balance sheets to expand without tapping credit markets.
That said, the recovery in employment is expected to be muted as small businesses – the engine behind U.S. employment growth – are still short on cash and credit. Indeed, unemployment claims remained above the 500,000 threshold, which means we continued to shed rather than add jobs (we need to see unemployment claims move back into the low 400,000 range before employment turns around).
On net, the economy is expected to lose another 200,000 jobs in October (the employment report will be released on Friday). We could see a small gain in jobs in December or January. The unemployment rate, however, is still expected to rise well into the first half of 2010. Moreover, we are likely to see the unemployment rate remain much higher than is usual for a recovery as baby boomers delay retirement.
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