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Rise in productivity boosts worries on hiring

Companies squeezed more work out of staff in the spring than initially thought, which means that hiring later in the year could remain in the doldrums.

The Labor Department reported Wednesday that nonfarm business labor productivity rose at a 2.2 percent annual rate in the second quarter, up from an initial estimate of 1.6 percent. Productivity slipped at a 0.5 percent pace in the first quarter.

Rising productivity can boost corporate profits. It can also slow job creation if it means companies are getting more from their current staff and don't need to add workers.

Still, there are limits to how much companies can squeeze from their staffs. When that happens, productivity slows and company typically must hire more workers to keep pace with demand. 

One reason productivity improved in the second quarter is hiring slowed to just 75,000 jobs a month from April through June. That's down from an average of 226,000 a month in the first quarter.

U.S. employers added 163,000 jobs in July, the best month of hiring in five months. The unemployment rate edged up to 8.3 percent. Hiring probably won't accelerate from that level unless growth picks up or productivity slows, economists say.

The government will release the August employment report on Friday. Economists forecast that the economy added 135,000 jobs last month, and the unemployment rate stayed at 8.3 percent.

The Federal Reserve closely follows changes in productivity and labor costs to make sure that inflation pressures are not getting out of control.

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Over the past year, productivity has risen 1.2 percent. That is far below the 3 percent average productivity growth turned in during 2009 and 2010. Those gains were a result of massive job layoffs during the recession as companies slashed costs in the face of falling demand.

Economists said higher productivity is typical during and after a recession. Companies tend to shed workers in the face of falling demand and increase output from a smaller work force. Once the economy starts to grow, demand rises and companies eventually must add workers if they want to keep up.

Reuters and The Associated Press contributed to this report.

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