The yin and yang of US productivity rise

The 3.1 percent rise is based on a big fall in hours worked.

Home-improvement retailer Home Depot announced Jan. 26 that it would cut 7,000 jobs as it restructures in the midst of the steep US recession.

The US became more productive last quarter – posting a better-than-expected 3.1 percent rise – but this is no way to grow an economy.

The nation's output actually fell at an annualized rate of 5.2 percent, the worst dip since the recession of 1982, the Bureau of Labor Statistics reported Thursday morning. The only reason productivity grew was that workers' hours fell even more – 8.1 percent, the worst performance since the first quarter of 1975.

That the US economy is now mimicking the performance of two of its worst postwar recessions is a dramatic illustration of the fix we're in.

Tough, but needed

It's also a necessary fix that's typical of downturns. When orders fall, companies cut their staffs and become leaner and more productive. That prepares them to profit handsomely when business picks up again.

"This is a classic bad news/good news story," writes Nariman Behravesh, chief economist for IHS Global Insight in Lexington, Mass., in an analysis of Thursday's numbers. "The bad news is that output is plummeting.... The good news is that productivity growth remains robust."

Pickup not in sight

The upturn won't happen soon, many analysts say. Businesses are releasing generally dismal earnings reports. More often than not, they're revising downward their expectations for the coming months.

The contraction is probably worse than the 3.8 percent decline that the Commerce Department reported last week, Mr. Behravesh writes. But the slimming down by companies "means that at least one of the underlying fundamentals of the US economy is very positive."

It's a brick, not a pretty one, in the foundation of a rebuilding economy.

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