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Companies boosted profits without hiring this spring

NBCNews.com's cartoonist weigh in on the lack of hiring by profitable corporations.

Despite a virtual hiring freeze in the spring, U.S companies increased profits and the overall volume of goods and services they produced rose by 1.7 percent.

So how did those companies make more stuff and serve more customers without hiring more workers?

They didn’t ask employees to work more hours. They asked them to work harder. And they didn't hand out raises. 

The Labor Department reported Wednesday that the productivity of the U.S. workforce rose at a much faster clip than previously thought in the second quarter. Productivity – which simply measures the volume of goods and services produced per worker per hour – jumped at a 2.2 percent annual rate. That was faster than many economists had expected.

Since the recession ended in 2009, U.S. employers have been hiring in fits and starts. In the first three months of the year, the pace of job growth picked up substantially, offering hope that the job market was beginning to recover. Companies also added overtime, expanding the total number of hours worked by 3.1 percent.

But that hiring spree and expanding workweek ground to a halt this spring. In April, May and June, U.S. payrolls added just 239,000 new jobs – less than the month of January alone. Overtime also froze; the number of hours worked rose by just 0.1 percent.

Despite the freeze on jobs and hours worked this spring, U.S. companies squeezed more profits from their operations. Corporate profits were up 6 percent year over year in the second quarter.

And while they asked workers to produce more, a weak job market helped companies hold the line on wages. The government’s economic wage measure, known as unit labor costs, rose by just 1.5 percent the second quarter after rising 6.4 percent rate in the first quarter. Unit labor costs have barely budged since the 2007 recession ended.

If companies can continue to squeeze more profits from the same number of workers, they have little incentive to add to their payrolls. That doesn't bode well for future hiring.

But some economists believe the surge in productivity may only be temporary.

“When mediocre output growth is achieved during a virtual hiring freeze, as was the case in the second quarter, the spike in productivity is generally temporary and payback is typical in the following months," said Erik Johnson, an economist with IHS Global Insight.

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. With staffing cut to the bone, the pace of layoffs has slowed sharply.

Even if future productivity gains prove hard to come by, companies will likely remain hesitant to hire until they see a convincing pickup in final demand for their products and services. That typically happens two or three years after a recession ends, as pent-up demand from consumers kicks in.

There have been some recent signs of that cyclical upturn in demand. Car sales have risen this year as buyers with aging clunkers have sought out higher-mileage models to help blunt the impact of risking gasoline prices. Home sales, which typically help lead economic recovery, have also begun to perk up this year.

But the current expansion cycle remain one of the weakest on record.  Nearly four years after growth resumed in 2009, the economy has barely recovered to output levels seen when the recession began.