The steep drop in labor productivity that was reported in the fourth quarter of 2012 was likely enough to affect profits at large corporations, however this alone won't have enough weight to convince employers to freeze their hiring plans, a new analysis suggests.
In the final months of 2012 the average hourly output per worker fell at its swiftest rate in four years. However, this decline also forced unit labor costs, which account for the cost of work performed to create any unit of production, up by 4.6 percent. This is a strong indicator that the lower productivity hit companies' bottom lines, Reuters reports.
Lower Profits Won't Encourage Hiring Freezes or Lay-offs
However, according to the news source, signals have yet to emerge that would suggest these lower profits will cause a drop in hiring or a rise in lay-offs. Either of these outcomes would be highly unlikely, economists, say, as long as wages and pay keep rising slowly.
"The recent slowing in productivity growth will likely lead to, at most, only a modest narrowing of corporate profit margins," said Michael Feroli, an economist at JPMorgan in New York. "Nominal hourly pay gains are advancing at a rate just under 2 percent, about the same rate as the increase in the prices at which businesses sell their products."
Temporary Factors Will Allow a Bounce Back
The news source noted that the slow economic growth in the fourth quarter of 2012 was most likely to due temporary factors, and it will likely bounce back in the first quarter of 2013. The most recent BLS report on unemployment applications is one of the latest indicators that suggest this.
Since November, jobless claims have fallen from a high of 451,000 to about 340,000 in March.
Some economists believe the drop in productivity suggests employers can't get anymore out of their current workforce. In response, companies could deploy new labor solutions that focus on quality and costs, as well as flexibility.