() Washington – Productivity in the U.S. fell 0.9 percent in the second quarter, according to the latest report from the Department of Labor.  Yet if businesses are not able to produce enough goods while costs rise it could mean they’ll have to hire more workers to meet demand.

Government data shows that in the April through June period labor costs rose 0.2 percent, marking the first increase in a year.  In order to pay workers more, businesses need to see an increase in output, yet the latest report shows productivity shrank against higher employee costs.  The results are in contrast to the prior period when productivity showed a marked increase against labor costs.

U.S. businesses now face a choice of whether they should raise their prices or accept a slower pace of output.  Yet if demand is there, businesses may opt to hire more workers instead.  With over 14 million Americans out of work, creating more jobs would be good for the economy but if it forced companies to raise prices, inflation might not work in favor of a recovery.  That is something the Fed must weigh as to whether the Central Bank decides to hold interest rates where they are or lower them.

During 2009, companies slashed payrolls and as a result productivity shot up 3.5 percent, the highest its been in six years.

Any further drop in productivity would normally be viewed as a problem for the U.S. economy, yet optimists believe in the current economic state of the U.S. it might mean a spurt in hiring.  It all weighs on whether or not demand for goods is sufficient to warrant adding to payrolls.  But in all likelihood any increase in hiring will be reserved in keeping with the ‘slow growth’ signal coming out of the Federal Reserve.  Still, slow growth in the job market is better than none.

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