US output per worker rose at its fastest pace in six years during the second quarter as businesses wrung more from shrinking staff in a sign that recovery from recession will be slow and unlikely to create a surge in hiring.
A US Labor Department report today showed non-farm productivity, a gauge of hourly output per worker, jumped at a 6.4% annual rate.
It was the sharpest since the third quarter of 2003 after a 0.3% gain in the January to March quarter.
A separate government report showed US wholesalers cut their inventories of unsold goods for a tenth straight month in July as businesses continued running as lean as possible in the face of uncertainty about how durable a recovery will be.
Analysts said the sustained drop in wholesale inventories posed a risk that second-quarter gross domestic product could be revised lower to show a annual rate of decline steeper than the 1% reported by the US government last month.
The productivity data is likely to be reassuring for the Federal Reserve, as it indicates inflation remains muted.
The US central bank started a two-day meeting today and is widely expected to leave overnight lending rates unchanged near zero.
Analysts said the surge in productivity helped to explain better-than-expected earnings from some companies, despite weak demand across all sectors of the economy.
Deeper cost cuts, including layoffs and plant closures, have helped companies such as Caterpillar Inc and 3M to post better-than-expected second-quarter results.
Separately, the Commerce Department said that stocks at US wholesalers plummeted 1.7% in June, driving inventories to their lowest level in more than two years.
The inventory-to-sales ratio fell to 1.26 months' worth from May's 1.28 months, the lowest ratio since October.
According to the productivity report, hours worked plunged at a 7.6% rate in the second quarter, while output fell 1.7%.
In a sign that inflation pressures remained benign and deflation was a threat, unit labour costs fell 5.8%, the biggest decline since the second quarter of 2000, after dropping a revised 2.7% in the January-March quarter.
Unit labour costs are closely watched by the Fed for hints of inflation.
