Labor Department announced today that productivity of U.S. workers rose 6.4% in the second quarter of 2009. Productivity is measured by output per hours of workers. The largest increase since the third quarter of 2003.

Here is the kicker:

The huge increase was due to hours working declined faster than output.

Oh, wait there is more:

Hourly compensation in the nonfarm business sector increased 0.2 percent in the second quarter of 2009, compared to a decrease of 2.4 percent one quarter earlier. When the 1.3 percent rise in consumer prices was taken into account, real hourly compensation fell 1.1 percent in the second quarter of 2009 (seasonally adjusted annual rates).

So, wages are not even competing up with inflation.

We have the productivity-wage gap growing. We have hours worked falling. We have real hour compensation decling.

This all translate to more destruction of the middle class and more income inequality. Our economic growth model is broken, as Dr. Palley argues, and this report is just another example of that.

I am adding these quotes from this news story because, in my opinion, show the total disregard for the survival of the middle class:

"It's good because it helps keep inflation low; labor costs are pretty benign," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida.

"On the other hand it means you can do more with fewer people," he said.

What an asinine thing to say. You would think increasing peoples income would help grow the economy. Then there is the obsession with inflation and wage growth:

Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, fell 5.8 percent, the biggest decline since the second quarter of 2000. Analysts had expected unit labor costs to fall 2.4 percent in the second quarter. Unit labor costs dropped by a revised 2.7 percent in the January-March quarter.

It seems to me that an increase in labor costs particularly in the form of real wages would help the economy. This neo-liberal economic growth model is not sustainable and it will destroy the middle class.

Update: RO here. I was writing a post at the same time so to keep topics consistent, I am attaching it to this post.

The Bureau of Labor Statistics of the U.S. Department of Labor today reported preliminary productivity data--as measured by output per hour of all persons--for the second quarter of 2009. The seasonally adjusted annual rates of productivity change in the second quarter were:

• 6.3 percent in the business sector
• 6.4 percent in the nonfarm business sector

Productivity gains in both sectors were the largest since the third quarterof 2003, and were due to hours worked declining faster than output.

In manufacturing, the preliminary productivity changes in the second quarter were:

• 5.3 percent in manufacturing
• 3.9 percent in durable goods manufacturing
• 2.0 percent in nondurable goods manufacturing

Manufacturing productivity grew 5.3 percent in the second quarter of 2009, as output fell 9.9 percent and hours worked decreased 14.4 percent (seasonally adjusted annual rates). This was the largest quarterly gain in manufacturing productivity since the first quarter of 2005, when output per hour increased at a 7.3 percent annual rate.

These are some astounding blow out productivity numbers.  While the report attributes the record breaking increases to a drop hours worked, there might be more to the story in offshore outsourcing and the drop in trade imports.   Stay tuned for a more detailed analysis.  In the interim, see Table A below:

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Table A. Productivity and costs:  Preliminary second-quarter 2009 measures
(Seasonally adjusted annual rates)
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                                                           Real
                                                 Hourly    hourly    Unit
                    Produc-                      compen-   compen-   labor
Sector              tivity    Output   Hours     sation    sation    costs
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                       Percent change from preceding quarter
                              
Business            6.3       -1.8      -7.5        0.1     -1.2     -5.8
Nonfarm business    6.4       -1.7      -7.6        0.2     -1.1     -5.8
Manufacturing       5.3       -9.9     -14.4        5.8      4.4      0.5
  Durable           3.9      -16.5     -19.6        8.7      7.3      4.7
  Nondurable        2.0       -3.4      -5.3        2.0      0.7      0.0
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                     Percent change from same quarter a year ago
                              
Business            1.9       -5.4      -7.1        1.1      2.1     -0.7
Nonfarm business    1.8       -5.6      -7.3        1.3      2.2     -0.6
Manufacturing      -1.3      -15.0     -13.9        6.0      7.0      7.4
  Durable          -5.0      -21.1     -16.9        7.1      8.1     12.7
  Nondurable       -0.2       -8.9      -8.6        4.9      5.9      5.1
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