WRAPUP 1-U.S. business productivity up but jobs scarce

By Glenn Somerville

WASHINGTON, Sept 4 (Reuters) - U.S. businesses boosted their productivity strongly in the second quarter but it was at the expense of weakening labor market, government reports on Thursday showed.

The Labor Department said business productivity surged at a revised 4.3 percent annual rate, nearly double the 2.2 percent gain previously reported and well ahead of forecasts for a 3.5 percent increase.

Companies have cut payrolls in each of the first seven months this year and an intently awaited report on Friday is expected to show that they did so again in August.

A separate report from the Labor Department confirmed a steadily weakening labor market as the number of U.S. workers filing new claims for jobless benefits jumped by 15,000 last week to a seasonally adjusted 444,000.

That was much higher than the 425,000 claims that analysts surveyed by Reuters had anticipated and sent stock futures prices down. But prices for U.S. Treasury debt extended gains as investors bet it meant that the Federal Reserve will keep interest rates low.

Another report from ADP Employer Services on Thursday showed private employers cut 33,000 jobs in August, which analysts said increased chances that Friday's payroll report from the Labor Department will be weak.

Analysts said the higher productivity was encouraging, since it keeps inflation in check and could help support business profits at a time of soaring costs.

"We don't have worry about a wage spiral but we do have worry about consumer purchasing power," said economist Christopher Low of FTN Financial in New York. "Given the credit conditions, spending power is going to be a real problem the rest of this year and into next year."

The report on productivity, which is a gauge of hourly output per worker, showed companies keeping a tight grip on costs by keeping their payrolls lean.

Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, contracted by 0.5 percent in the second quarter after rising 1.2 percent in the first three months this year.

Worker hours were trimmed by 0.8 percent in the second quarter after being cut 1.7 percent in the first quarter.

Analysts said the U.S. unemployment rate probably will keep moving higher as a sluggish economy encourages companies to lay off rather than to hire.

"Given the steady upward march in continuing claims and further losses across the broad spectrum of the economy, we expect the rate of unemployment to rise to 5.8 percent in August and move towards 6.2 percent early in 2009," said Joseph Brusuelas, chief economist for Merk Investments in Palo Alto, Calif. (Editing by Neil Stempleman)