Salient to Investors:

The U.S. economy may be on the cusp of a pickup in productivity that will make it more difficult for the Fed to reduce unemployment.

Corporate profits rose 6.5 percent in Q1 from a year ago, the smallest year-to-year gain since the recession ended in mid-2009.


Ellen Zentner at Nomura securities and Professor Robert Gordon expect worker output per hour to rise in line with its long- run trend, and that below-forecast payroll gains in May and April may be closer to the norm than the exception for the rest of 2012. Gordon said productivity growth will return to a trend of 1.2 percent to 1.4 percent per year, meaning job creation will be slower in the next year or two compared with 2010 or 2011.

Michael Feroli at JPMorgan Chase & Co. expects companies to strive for bigger gains in efficiency to maintain profit growth, which slowed in recent months, and says companies are starting to pull back.

Dean Maki at Barclays said that while the productivity gains will reduce the need for labor in the short-term, they will create future jobs by enlarging the economy’s potential for growth.

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