By Jonnelle Marte
Since the recession, companies avoided hiring new employees by pushing existing staff to work longer and harder. But experts say employers may have squeezed everything they can out of their workforce — and now have no choice but to start hiring.
Early Thursday, the markets were already anticipating good news on the hiring front: The Dow rose more than 200 points Thursday morning after Automatic Data Processing reported that private businesses added 201,000 jobs in August.
But productivity data has some analysts thinking that more growth is on the way. Productivity, a measure of output per hour worked, increased 1.2% in the second quarter compared with a year ago — the fastest pace of growth in nearly two years, the Department of Labor reports. While that is still short of the long-term average growth of 2%, productivity seems to have hit a plateau, says Erik Johnson, a U.S. economist with IHS Global Insight. “It’s not sustainable,” he says. “At some point, you’re going to max out and need to find other ways to increase output.”
Indeed, history shows that productivity typically falls off after an increase like the one seen last quarter, says Johnson, who expects productivity to drop off in the third quarter as companies increase hiring. A similar drop occurred in the first quarter of this year, when productivity fell by .5% annually as the rate of job increases sped up. While labor growth does increase production, the boost often isn’t immediate, because companies may have to train those newer workers, Johnson says.
To be sure, companies may remain hesitant to bring on new workers, given their continued uncertainty about the economy. Some employers are already reining in spending ahead of the U.S. presidential election and a “fiscal cliff” of automatic spending cuts and tax-break expirations that will go into effect next year if Congress fails to act. The debt crisis in Europe could also hurt profits for U.S. companies, which get a chunk of their profits from business overseas, advisers say.
Hiring could also be deterred if interest rates rise and the Federal Reserve holds back from rolling out more monetary stimulus, says Madeline Schnapp, director of macroeconomic research for TrimTabs Investment Research. That could lead to a scenario where the workers that don’t get the help they need begin to burn out and move on to other companies or produce lower quality work, says Schnapp.
Investors may have to wait until the Labor Department releases its monthly jobs data Friday to get a clearer picture on where the economy is headed and whether the Fed may be spurred to take action. Expectations are that the economy as a whole added 125,000 jobs in August.