» This Story:Read +|Watch +| Comments

Rising worker productivity, innovation boosts profits but may lessen hiring need

Sparks of an economic recovery have seemingly reignited the desire to shop, though many consumers continue to exercise some measure of restraint.

Network News

X Profile
View More Activity
Discussion Policy
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
By Anthony Feld and Craig Torres
Friday, November 26, 2010; 9:59 PM

MAXTON, N.C. - Not far from where Federal Reserve Chairman Ben S. Bernanke grew up, a revolution inside a Campbell Soup Co. plant explains why corporations are piling up profits - with little need to hire more people.

This Story

Workers such as "Big John" Filmore, a 28-year Campbell veteran, huddle every day with management in situation rooms before their shifts to find ways to save money for the company. Rising productivity is helping boost profit margins here in Maxton, where 858 workers turn out a billion meals a year, and at most of the 243 non-financial companies in the Standard & Poor's 500-stock index with rising profit margins.

Companies slashed 8.5 million jobs during the worst recession since the Great Depression while also slowing capital investment plans. Campbell, the world's largest soup maker; DuPont, the country's third-biggest chemical maker; and United Parcel Service, the world's largest package-delivery business, are asking workers to help save cash by working smarter with existing technology. A potential cost: Efficiency gains reduce the chances that recession-casualty jobs will come back.

"When the productivity growth comes, then watch out because that is when companies start not needing so much labor," Edmund Phelps, a Columbia University economist and Nobel laureate, said in an interview.

Growth in productivity, or output produced in an hour of work, averaged an annualized 3.4 percent in the five quarters since the 18-month recession ended in June 2009. That is similar to the 3.7 percent gain in the first five quarters after the 2001-03 so-called jobless recovery.

The efficiency gains have paid off in corporate profits. Earnings from continuing operations of companies in the S&P 500 have rebounded 23 percent since the fourth quarter of 2007. Sales have declined 9 percent over the same period.

Research by San Francisco Federal Reserve Bank Vice President John Fernald and senior economist Daniel Wilson shows a striking difference in the sources of today's productivity gains from those during the recovery at the beginning of the decade.

Wilson concluded that so-called total factor productivity, which may capture gains from innovations in the way workers perform tasks and a more intense use of capital, rose at a 2.9 percent annual rate in this recovery, almost a percentage point more than in the last recovery. The data suggest companies are using the equipment they have more intensively and intelligently, Wilson said in an interview.

"There is a big story in why we in the U.S. have been so innovative," former Fed chairman Alan Greenspan said in an interview. "American business for generations has sought ideas from the shop floor. We learn from everybody in the operation, not only from the plant hierarchy."

Phelps says productivity growth works in long waves. In boom times, companies stock up on equipment. In lean times, they find ways to maximize performance of that equipment.

That's a challenge for Bernanke, who grew up in Dillon, S.C., about 26 miles from the Maxton plant. The economy's 3.7 percent annual rate of expansion in the first quarter was the second-strongest of the recovery so far.

Yet data released last week by the Bureau of Labor Statistics show that while firing has slowed, hiring hasn't picked up. Job gains from new or expanding businesses were 6.1 million in the first quarter, the lowest quarterly increase since the recession ended. Job losses from closing or shrinking businesses fell to 6.4 million, the smallest on BLS records going back to 1992.


CONTINUED     1        >


» This Story:Read +|Watch +| Comments
© 2010 The Washington Post Company

Network News

X My Profile