WASHINGTON — Companies managed to boost their workers’ productivity and their own profits in the spring mainly by slashing costs and capping employees’ pay.
That was clear from revised government figures released Wednesday that provided further evidence that a tentative economic recovery has begun, while also reinforcing nagging concerns. Analysts worry the tight job market and lack of wage growth will depress incomes, limit further corporate profitability and forestall a pickup in all-important consumer spending.
Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pa., said companies that have shed workers and squeezed out savings won’t be able to show the big profit gains they did last quarter by relying on more big cuts.
Having already made deep reductions, companies will need to find ways to generate more revenue.
“Profits have recovered nicely, but it’s more the way that they have recovered that gives people pause,” Schultz said. “The key is to somehow blend this cost-cutting with revenue growth.”
Productivity — the amount of output per hour of work — rose at an annual rate of 6.6 percent in the April-June quarter, the Labor Department said. That’s the largest advance since the summer of 2003. And it’s slightly better than the 6.4 percent productivity increase the government had estimated last month.
At the same time, labor costs fell at an annual rate of 5.9 percent — the sharpest drop since 2000 and slightly more than the 5.8 percent drop estimated a month ago.
Economists said the rising productivity and lower labor costs supported their view that the longest recession since World War II is coming to an end.
Mark Zandi, chief economist at Moody’s Economy.com, said it’s “very typical” for productivity to surge at the end of a recession as businesses aggressively cut costs.
Economists say they don’t expect productivity to keep surging. But they said the productivity jump in the second quarter, combined with falling labor costs, might persuade employers to slow their pace of layoffs and eventually resume hiring.
That is critical because until the labor market heals, consumers probably won’t step up their spending. And consumer spending, which accounts for about 70 percent of economic activity, is a vital ingredient in any sustained rebound from the recession.
A dismal job market makes that prospect uncertain.
On Friday, the government will report the August unemployment rate, which economists expect to tick up to 9.5 percent, from 9.4 percent in July.
