WASHINGTON – U.S. productivity growth slowed in the fourth quarter while labour costs kept falling. For the year, productivity turned in another weak gain.
Productivity grew at an annual rate of 3.2 per cent in the October-December period, down slightly from a 3.6 per cent growth rate in the third quarter, the Labor Department reported Thursday. Labor costs fell at a 1.6 per cent rate in the fourth quarter after an even bigger 2 per cent rate of decline in the third quarter.
For the year, productivity rose a slight 0.6 per cent, down from a 1.5 per cent increase in 2012, and the weakest performance since an 0.5 per cent rise in 2011. Labor costs edged up a slight 1 per cent in 2013, continuing a trend of modest gains in labour costs.
Productivity measures output per hour of work. Greater productivity raises living standards because it enables companies to pay their workers more without having to raise prices which could boost inflation.
The Federal Reserve monitors productivity and labour costs for any signs that inflation could pick up. Mild inflation has allowed the Fed to keep short-term interest rates at record lows and purchase bonds to try to keep long-term rates down.
The Fed in December and again in January announced that it was reducing its monthly bond purchases, taking them from $85 billion per month down to $65 billion.
But at the same time, the Fed strengthened its commitment to keep short-term rates low for an extended period. It expects to keep those rates low “well past” the time that unemployment dips below 6.5 per cent. The unemployment rate is currently 6.7 per cent.
In records going back to 1947, productivity has been growing by about 2 per cent per year.
In 2010 and 2011, productivity increased at annual rates above 3 per cent. That reflected the fact that millions of Americans were laid off as companies struggled to cope with a deep downturn. While output was down as well, the number of workers fell more, increasing the rate of productivity.
After that initial jump, productivity has slowed in recent years.