Productivity up 6.6 percent in 2Q, most in 6 years

WASHINGTON (AP) — Worker productivity, the single-biggest factor determining living standards, grew at the fastest pace in nearly six years in the spring while labor costs fell by the most in nine years, as companies slashed costs to survive the recession.

Increases in productivity can help boost living standards because companies can increase wages financed by rising output.

But during the recession, companies have been using their productivity gains to bolster their bottom lines as many struggle to stay in business.

This cost-cutting helped many companies report better-than-expected second-quarter earnings despite falling sales. But economists worry that such aggressive cuts will make it harder to mount a sustainable recovery. That’s because the lack of wage growth and shortage of jobs will depress household incomes and make the prospects for a sustained rebound in consumer spending less likely.

Consumer spending is critical to the recovery since it accounts for about 70 percent of total economic activity.

The Labor Department said today that productivity, the amount of output per hour of work, rose at an annual rate of 6.6 percent in the April-June quarter, the largest advance since summer 2003. Economists expected an increase of 6.4 percent, matching the government’s initial estimate last month.