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Productivity jumps as number of workers falls

Initial claims for unemployment benefits also rising

SHARE Productivity jumps as number of workers falls

WASHINGTON — America's businesses pumped out more with fewer employees last quarter in a big boost for productivity, and new claims for unemployment benefits are rising, underscoring the strains facing workers even as the economy gains momentum.

Productivity — the amount an employee produces for each hour of work — soared at an annual rate of 6.8 percent in the April-to-June quarter, marking the largest increase since the first quarter of 2002, according to revised figures released Thursday by the Labor Department. That was even stronger than the government's initial estimate of a 5.7 percent growth rate.

The productivity gain comes as 170,000 jobs were shed during the second quarter and businesses squeezed more efficiency out of the workers they kept.

In another report from the department, new applications for jobless benefits rose last week by a seasonally adjusted 15,000 to 413,000, the highest point since the middle of July.

"While companies may be getting a bit more optimistic on other fronts, they have not yet taken that last step to add to their staffs," said Carl Tannenbaum, chief economist at LaSalle Bank. "Hiring people back full time is a significant commitment, so demand has to be absolutely solid for them to think about bringing people back."

Other economic news suggested that consumers' and businesses' appetites are perking up.

Many retailers reported robust sales in August as parents opened their wallets for back-to-school merchandise.

Wal-Mart Stores Inc., the world's largest retailer, reported its best same-store results since June 2002. Sears, Roebuck and Co., powered by robust sales in home appliances, posted its first same-store sales increase in two years. Same-store sales are sales at stores open at least a year and are considered the best indicator of a retailer's health.

Swank retailer Neiman Marcus Group also posted August results that were well above analysts' forecasts.

But gains at Gap Inc. were disappointing, while teen retailers Abercrombie & Fitch and American Eagle Outfitters Inc. suffered sharp declines.

Meanwhile, U.S. manufacturers saw demand for their products rise by a sharp 1.6 percent in July, the Commerce Department said.

Also Thursday, mortgage giant Freddie Mac reported that rates on 30-year mortgages climbed this week to the highest level since last summer.

The average rate rose to 6.44 percent for the week ending Sept. 5, up from 6.32 percent last week. The recent upward swing marks a turnaround from the middle of June, when rates on 30-year mortgages slid to 5.21 percent, the lowest level in more than four decades.

Although recent economic reports suggest the economy is rebounding, businesses still are cautious when it comes to hiring, economists said.

"I don't fully understand the sources of this conservative behavior on the part of company management, and for that reason, I cannot be entirely confident that caution will not continue to predominate in the executive suite," Fed Governor Ben Bernanke said in a speech Thursday.

Economists expect the nation's unemployment rate to stay stuck at 6.2 percent when the government releases the employment report for August on Friday. Economists said the battered job market will be one of the last areas of the economy to recover.

With other parts of the economy on the mend, economists believe the Federal Reserve will hold a key short-term interest rate steady at a 45-year low of 1 percent when it meets on Sept. 16. If the job market doesn't turn around, however, Bernanke didn't rule out a Fed rate reduction down the road.

"Growth that is generated solely by increased productivity, and that is unaccompanied by substantial employment growth, may possibly require monetary ease, rather than monetary tightening, in the short run," he said.