American workers increased nonfarm productivity an annualized rate of 6.4 percent in the second quarter of this year, the Bureau of Labor Statistics reports. That's well more than the 5. 5 percent increase many economists had expected. Workers saw their overall compensation grow by .2 percent, while companies enjoyed a drop in labor unit costs of 5.8 percent.
This official number helps make sense of a few developments in the economy. First, many large corporations reported that revenue was down but profits were up last quarter. That's because they'd cut labor costs by laying off workers and squeezing more productivity out of the people who remained. Second, workers who say they're being asked to do more with less are just plain right.
The numbers also seem to show that inflation is not an immediate threat. The slight rise in hourly compensation is stronger than the negative 2.4 percent from the first quarter, but it's a shadow of the 1.3 percent gain from a year ago and the 4.2 percent gain overall in 2007.
The BLS reports that the jump in productivity is the result of "hours falling faster than output" — and how. Output was falling last quarter at a yearly clip of 1.7 percent. Meanwhile, hours worked fell for the sixth straight quarter, at an annualized pace of negative 7.6 percent compared to negative 9 percent from the first quarter. If not for the last two miserable quarters, this quarter's drop in hours would be the steepest in the BLS data — back to 1947.