Hiring grows as companies hit their limits with workers

WASHINGTON -- U.S. companies will have to keep hiring steadily to meet their customers' rising demand.

That's the message that emerged from a report Wednesday that employers are finding it harder to squeeze more output from their existing staff. It also helps explain why ADP, a payroll provider, estimated Wednesday that companies added 216,000 workers last month.

Those findings reinforced confidence that 2012 will mark a turning point for the long-suffering job market and the economy. Applications for unemployment benefits have tumbled. Consumer confidence is at its highest point in a year. And the stock market has been on a tear since the year began.

Feeding on themselves, those trends tend to fuel further economic growth.

The brighter signs come two days before the government will issue the February employment report. It's expected to show a third straight month of strong hiring.

Business executives are sensing the shift. A survey released Wednesday by Duke University's Fuqua School of Business found that confidence among U.S. chief financial officers has risen to its highest point in a year. As a result, the survey found that companies expect to increase hiring for full-time jobs by 2.1 percent over the next year, up from 1.5 percent in a survey in December.

"This rebound is encouraging because increases in chief financial officer optimism have historically preceded improvements in the overall economy," said John Graham, a finance professor who directed the survey.

The survey was released the same day that the government reported a paltry gain in worker productivity at the end of last year. The 0.9 percent annualized increase was half the growth rate from the July-September quarter. Similarly, for the year, U.S. worker productivity grew at its slowest pace in nearly a quarter of century.

Productivity measures output per hour of work. Slower productivity can squeeze corporate profits. But it can lead to more jobs if it shows that companies can't derive more production from their workers. That often means they must hire to meet customer demand.

After the recession, productivity soared. After laying off staffers, companies managed to make their leaner staffs more efficient. Such productivity growth tends to slow eventually.

"The typical bounce in productivity that we usually see coming out of a recession has run its course," said Troy Davig, an economist at Barclays Capital. "Firms will likely need to rely increasingly on adding to payrolls to increase their output, rather than squeeze existing resources."

Overworking employees can also dull creativity and lead to less innovation, said Mike FitzGibbon, co-founder of 3Cinteractive, which builds applications for smartphones.

The company has 12 open positions and plans to add up to 60 jobs this year, on top of its work force of 120, FitzGibbon said. It is analyzing the needs of specific departments to avoid overloading any single employees and determine where hiring is most needed.

"The last thing we want to do is have a software developer completely burned out," he said.

FitzGibbon's inclination to step up hiring reflects a broader trend. The economy has added an average of 200,000 net jobs per month from November through January. That job growth has helped lower the unemployment rate for five straight months to 8.3 percent. Economists predict that more than 200,000 net jobs were added in February, too.

A return to more robust hiring ultimately leads to higher wages and more consumer spending, which fuels economic growth.

One concern is that labor costs are rising and might be building inflation pressures. Such costs rose at a revised 2.8 percent annual rate in the October-December quarter. That's less than the 3.9 percent increase in the July-September quarter. But it's more than twice the initial estimate of labor costs for the fourth quarter.

Rising labor costs could force businesses to raise prices. Still, some economists say higher prices wouldn't likely be sustained as long as nearly 13 million Americans remain unemployed and others aren't being paid enough to keep up with inflation.

"Companies are likely to cover the higher labor costs by trimming their profits rather than raising the prices of their products," said Richard DeKaser, a senior economist at the Parthenon Group.

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AP Economics Writer Christopher S. Rugaber contributed to this report.