Productivity, or output divided by hours worked, in the US non-farm business sector increased to a 3.2% annual rate over the last three months of the year, according to the Bureau of Labor Statistics. This number is a huge positive, since economists had forecast a much smaller 1.1% increase, but it is probably due to the fact that U.S. firms have cut back their employees’ working hours, keeping productivity growth rising faster than expected. Hours worked dropped 8.4% in the 4th quarter, the weakest since 1975. And output, the other variable to the equation, fell 5.5%, the largest since 1982.
Productivity is important because it increases profit margins and real wages, since more is being produced with less. This, in turn, becomes a key deterrent of inflation and promotes a higher standard of living.
High productivity growth means the economy can grow rapidly without inflation, raising living standards and theoretically allowing workers to get big raises without hurting company profits.But a low rate of productivity growth can mean a sluggish economy and increased inflationary pressures.-MarketWatch
For the full year, productivity increased 2.8%, the fastest since 2003, compared with a average annual rate increase of 2.5% from 2000-2007. Productivity averaged about 2.2% annually from 1947 to 2008.
Unit labor costs, a key measure of inflation, came in at 1.8% annualized rate for the quarter. Economists forecasted a number closer to 2.9%. In the last year, unit labor costs have increased only 0.5%.
[For all of 2008] hours worked are down 1.0% and output is up 1.0%.
In the manufacturing sector, productivity fell 3.0% in the fourth quarter, while unit labor costs jumped 13.3%.
Manufacturing output fell 16.7%, the biggest drop on record, while hours worked decreased by a record 14.1%.
Real hourly compensation rose a record 15.6% in the quarter and is down 0.4% in the past year.
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