US productivity falls sharply in fourth quarter

US productivity dips sharply in fourth quarter
US productivity dips sharply in fourth quarter

U.S. nonfarm productivity fell in the fourth quarter at its fastest pace in more than a year, leading to a jump in labor-related production costs.

The Labor Department said on Thursday that productivity, which measures hourly output per worker, declined at a 3.0 percent annual rate, the biggest drop since the first quarter of 2014. Productivity rose by a downwardly revised 2.1 percent rate in the third quarter.

Economists polled by Reuters had forecast productivity falling at only a 1.8 percent rate last quarter after expanding at a previously reported 2.2 percent pace in the third quarter.

The weak productivity reflects a sharp slowdown in gross domestic product growth during the quarter and an acceleration in the pace of hiring. Economic growth slowed to a 0.7 percent rate in the final three months of 2015, while nonfarm payrolls rose by an average 284,000 jobs per month.

Productivity grew 0.6 percent in 2015, the smallest increase since 2013. Productivity increased at an annual rate of less than 1.0 percent in each of the last five years. The average annual rate of productivity growth from 2007 to 2015 is 1.2 percent, well below the long-term rate of 2.1 percent from 1947 to 2015.

Economists blame softer productivity on a lack of investment, which they say has led to an unprecedented decline in capital intensity.

While weak productivity has boosted employment growth as companies hire more workers to increase output, economists say it has contributed to stagnant wages and lowered the economy's speed limit.

In the fourth quarter, hours worked increased at a 3.3 percent rate. Unit labor costs, the price of labor per single unit of output, advanced at a 4.5 percent pace, the fastest rate in a year.

Unit labor costs increased at a 1.9 percent rate in the third quarter and rose 2.4 percent in 2015, the largest gain since 2007.

Compensation per hour increased at a 1.3 percent rate in the fourth quarter after rising at a 4.1 percent rate in the third quarter. Compensation increased 3.0 percent in 2015, also the largest increase since 2007.