By John W. Schoen Senior producer
msnbc.com
updated 3/4/2010 1:49:16 PM ET 2010-03-04T18:49:16

Glenda Green is working harder for less money.

When business fell off at Heinnies Backbarn Restaurant in Elkhart, Ind., after the recession hit, her employer had to cut her hours as a full-time bartender. For over a year, she’s been getting by on a few shifts a week, helping to boost profits by serving food at the bar.

“The owners are working more, the employees are working more ... just to try to even maintain what we were making before,” she said.

Green is one of millions of Americans pressured by a pair of forces that economists say are boosting productivity as companies large and small have slashed payrolls. At the same time, they’re asking their remaining workers to pick up the slack left by their former colleagues in a quest to squeeze more profit from every hour worked.

So far, it seems to be working for companies, at least. For workers and their families? Not so much.

The Labor Department reported Thursday that productivity jumped at an annual rate of 6.9 percent in the fourth quarter, even better than an initial estimate of 6.2 percent growth. The surge in productivity is much stronger than the 3.8 percent gain for all of 2009 and more than triple the 2 percent increase in 2008.

Graph: Productivity
Few economists expect the surge in productivity to last — largely because there is a limit to how much more work the people who are still employed can do. For them, the hope is that as the economy continues on a path of slow recovery and their business begins picking up again, employers will have to hire back some of the more than 8 million people they’ve laid off since the recession began.

“My own hunch is we’re pretty close to the turning point in terms of the labor market,” said Josh Feinman, chief economist at DB Advisors, an asset management group. “And probably in the course of the next few months we’ll see some net hiring.”

But that rehiring has yet to show up in the official numbers. Economists expect Friday’s report on employment for February to show the economy continued to shed jobs last month.

In the meantime, big productivity gains have helped boost corporate profits. In the latest round of quarterly earnings reports, more than 70 percent of companies in the Standards and Poor’s 500 list beat Wall Street’s expectations for profit gains.

But while the corporate bottom line is recovering from the steepest slide since the Great Depression, Americans aren’t seeing it in their paychecks. The same report showed that “unit labor costs," which measures how much companies are paying for the same amount for work,  fell by 5.9 percent, more than the original 4.4 percent drop estimated for the quarter.

Lower labor costs are a reflection of several factors. Even as companies get more work out of their pared-down staffs, they have slowed wage increases for the employees who remain.

Many economists are encouraged by the continued strength in consumer spending, even as wages haven’t kept up. On Thursday, retailers posted their best monthly sales performance since just before the recession started in 2007, as leaner inventories in February brought in sales at full price.

The economic recovery can't survive a continued drop in labor costs forever. Consumer spending generates some two-thirds of U.S. economic activity. Without wage gains, it will be difficult to sustain the growth in consumer spending needed to take up the slack when the federal government stimulus spending wears off later this year.

Most forecasters expect the economy to post weak growth through the rest of the year and into 2011.

"While the economy seems to be picking up some momentum, massive excess capacity in factories and in the labor markets is still the order of the day," said Brian Bethune, chief U.S. financial economist at IHS Global Insight, in a recent note to clients.

Those "slow growth" forecasts make the assumption that companies will begin hiring again and expanding hours for people like Green.

Until then, American households will have to stretch a smaller paycheck even further. For Green, the bartender, the first things to go were the “extras," including dining out and Internet access on her cell phone. But that only goes so far. With savings dwindling, there's another fallback: more borrowing.

“I’ve been able to pay my bills, but I’m racking up credit card debt because my gas and my food, they’re going on my credit cards,” she said.

Lost paychecks for the more than 15 million workers who rank among the unemployed are also weighing on the housing market, which is considered another cornerstone for a solid economic recovery.

After perking up in response to government tax incentives for home buyers, the number of buyers who agreed to purchase a home fell sharply in January. Though sales in the Northeast may have been hurt by a series of winter storms, the weakness showed up throughout the country. It was the lowest reading since last April and a disappointment to economists, who had expected a gain for the month.

Friday’s employment is expected to show another 50,000 jobs lost in February, but economists are giving the report less weight than usual. Some analysts suggest the data may be skewed by a major snowstorm during the week the survey was conducted last month. Those losses could be offset by the ramp-up of temporary Census workers.

But there are early, tentative signs that the job market may soon show signs of improvement. The number of workers filing new applications for unemployment insurance fell last week. On Wednesday, a private trade group, the Institute for Supply Management, reported a modest gain in its hiring index for the services sector, which employs the lion's share of U.S. workers.

A survey released Thursday by a national staffing company, Robert Half International, found 10 percent of the 4,000 executives who responded expect to increase hiring in the second quarter, compared with 6 percent who anticipate cutting jobs. (The vast majority — 82 percent — plan no change in hiring.)

In Elkhart, Green said she just lost out as a finalist for a job as an administrator to a local chief executive. The company had been understaffed for months and the CEO told her he was worried about working the remaining staff too hard and losing good employees.

“They said, ‘We feel we’re wearing our staff thin,’” said Green, "'because if somebody is out on vacation or and somebody is sick, then people have to pick up double and triple duties. And we don’t want to do that to them anymore.’”

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