Worker output up — but at a price

By Jeannine Aversa
Associated Press

WASHINGTON — Worker productivity posted the best showing in more than a year in the third quarter. But the improvement came at a price: Businesses, coping with the economic hard times, slashed workers' hours by the largest amount in a decade and eliminated jobs.

The Labor Department reported yesterday that productivity — the amount of output per hour of work — rose at an annual rate of 2.7 percent in the July-September quarter, compared with a 2.2 percent growth rate in the previous quarter.

Businesses responded to falling sales by sharply cutting back on payrolls. That caused the total number of hours worked to drop at a faster pace than output, thus creating the rise in productivity.

Productivity rose in the third quarter as businesses cut workers' hours at a 3.6 percent rate. It was the largest drop in hours since the first quarter of 1991 when the country was in the depths of its last recession. Output, at all businesses other than farms, declined at a rate of 1 percent, the biggest decrease since the first quarter of 1993.

"Companies reacted very quickly to try and shore up their profits and adjust their production to the sharp falloff in sales," said Lynn Reaser, chief economist at Banc of America Capital Management.

"The ability for companies to adapt quickly will help ensure their long-term viability and in the longer term that will benefit employees," she said. "But certainly, workers who had benefited from rising hours and job opportunities in the past are now bearing a large share of the decline in economic activity."

The overall economy shrank at a 0.4 percent rate in the third quarter and many analysts predict an even bigger decline in the current fourth quarter. A common definition of recession is two consecutive quarters of falling economic output.