Companies Hang On To Cash Instead Of Hiring

Recent government data showed that U.S. employee productivity rose at its fastest pace in six years in the third quarter of this year, Reuters reports. The 9.5% annual rate jump in the amount of output per employee, came at a time when many American employers are slashing jobs in an effort to cut costs.

The U.S. unemployment rate climbed in October to 10.2%, a 26-1/2 year high. As of October, U.S. employers’ payrolls had declined for 22 months and 7.3 million people had lost their jobs since December 2007.

A wide gauge of labor-market slack, that includes unemployed Americans who have given up looking for work, hit a record 17.5% last month, the government said. While employers are requiring more output from the same or even fewer number of people, some economists say the jump in productivity may have used up much of the productivity slack in the existing workforce.

“Companies are clearly determined to maintain very tight control over labor costs in the face of a once-in-a-lifetime collapse in demand, but they surely cannot keep up this pace,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, NY.

Rather than hiring, data suggests U.S. companies are holding on to cash while economic uncertainty looms. Standard and Poor’s said cash and its equivalents for the S&P industrial companies in the third quarter, was 12% ahead of the record set in the second quarter of over $770 billion.