Productive statistics
Our fascination with economic reports likely increases during difficult times. Particularly when emerging from the biggest recession in 75 years, we peruse every piece of data in search of good news. This ardent quest for silver linings can, on occasion, lead us to celebrate numbers not necessarily in our best interests.
This week, for example, the U.S. Labor Department informed us that worker productivity increased at the fastest pace in six years -- and much better than economists had predicted. The amount of output per hour of work soared 9.5 percent, well above the expected 6.4 percent gain. Not surprisingly, unit labor costs fell as well.
The statistics sound good -- at least at first blush. They appear to suggest the American worker is getting better, accomplishing his tasks quicker or improving her efficiency.
The truth of the matter is that we're living the maxim of doing more with less. We're not actually creating any more product; we're merely creating the same with fewer people. Thursday's productivity report was followed by this morning's unemployment report. With almost 16 million people looking for work, the unemployment rate has now hit double digits nationally.
And that's how companies can boost productivity. It's artificial, but it works.
Let's say you own Company XYZ. You have 100 workers on your payroll making 2 million widgets per year. But you're losing money in the process. So, you instruct your managers to let 50 workers go but do not allow any decrease in widget-making. Voila! You've doubled the rate of productivity. A 50-percent decrease in workers results in a 100-percent increase in productivity.
The example is extreme for illustrative purposes only. But companies are being forced to extremes during these tough times. October was the 22nd straight month the U.S. economy reduced the number of jobs. Companies shed a net 190,000 positions during the last month alone.
And economists predict we have not reached the end. Even though the economy is showing some signs of recovery, the rate of unemployment could rise to 10.5 percent sometime in 2010.
Productivity rates and unit costs of labor are important statistics to track. They can give us relative measurements to compare industries, companies, even countries. But let's not applaud this recent surge too heartily. It happened only because more of our families and friends have lost their jobs.
Editorial by Patrick Lowry