BUSINESS

US productivity falls at 2.2 per cent rate in fourth quarter, weaker than first estimated

03/05/2015 09:01 EST | Updated 05/05/2015 05:59 EDT
WASHINGTON - U.S. worker productivity was even weaker than first thought from October through December while labour costs rose at a faster rate.

Productivity declined at an annual rate of 2.2 per cent in the fourth quarter, weaker than the 1.8 per cent drop that was estimated a month ago, the Labor Department said Thursday. Labor costs rose at a 4.1 per cent rate, faster than the 2.7 per cent increase first estimated.

Weaker productivity and higher labour costs could spell inflation troubles for the economy. But analysts say that the changes in the fourth quarter are temporary and not an indication that inflation is about to be a problem.

Analysts had expected the revision for productivity would be weaker than the first estimate, reflecting the fact that the government last week revised its estimate for economic growth, as measured by the gross domestic product.

The GDP, the nation's total output of goods and services, was revised down to growth of just 2.2 per cent in the fourth quarter, slower than the initial estimate of 2.6 per cent. Productivity is the amount of output per hour of work and with less output in the fourth quarter, productivity was revised lower as well.

The Federal Reserve closely watches developments in productivity and labour costs for any signs that wage pressures are rising to unwanted levels. But at the moment, the Fed is more worried that wages are not rising fast enough rather than rising too quickly.

For all of 2014, labour costs were up a modest 1.8 per cent after a slight 0.2 per cent gain in 2013. Productivity for all of 2014 was up just 0.7 per cent, similar to the 0.9 per cent gain in 2013.

Doug Handler, chief U.S. economist at Global Economics, said that 2014 was the fourth straight year that productivity has run below its average over the past decade of 1.5 per cent.

Handler said the recent strong employment growth represents a challenge for companies to make sure they are utilizing their new hires in the most effective manner. But he predicted that the new workers will gain the skills they need to be more productive and this will help push productivity up to a range of 1.5 per cent to 2 per cent starting in 2016.

Job growth picked up significantly last year and unemployment stood at 5.7 per cent in January, an improvement from the high of 10 per cent unemployment hit in late 2009.

Even with the labour market improving, economists expect it will be some time before labour costs accelerate to a rate that will be a problem.

For all of 2014, labour costs were up a modest 1.8 per cent after a slight 0.2 per cent gain in 2013. Productivity for all of 2014 was up just 0.7 per cent, similar to the 0.9 per cent gain in 2013.