Productivity contracted at a seasonally adjusted annual rate of 1.9 per cent in the October-December quarter, the Labor Department said Thursday. That's about the same as last month's estimate of a 2 per cent decline. It followed a 3.1 per cent gain in the July-September quarter.
Productivity is the amount of output per hour of work. It shrank because economic activity barely expanded in the fourth quarter, while hours worked rose at a solid pace.
The decline in productivity doesn't necessarily signal more hiring. That's because the economy's 0.1 per cent annual growth in the fourth quarter was due to defence cuts and slower company restocking. Those trends should reverse in the current quarter.
Still, the trend in productivity has been fairly weak. For all of 2012, productivity rose by just 0.7 per cent, after an even smaller 0.6 per cent rise in 2011.
Those gains were less than half the average growth in 2009 and 2010, shortly after many companies laid off workers to cut costs during the Great Recession. And it's below the long-run trend of 2.2 per cent growth a year dating back to 1947.
Companies may ultimately need to hire more workers if they see only modest gains in productivity and more demand for their products.
Economists predict worker productivity will stay weak through 2013. Higher productivity is typical during and after a recession, they note. Companies tend to shed workers in the face of falling demand and increase output from a smaller work force. Once the economy starts to grow, demand rises and companies eventually must add workers if they want to keep up.
The Federal Reserve closely monitors productivity and labour costs for any signs that inflation is affecting wages. Mild inflation has allowed the central bank to keep interest rates at record lows in an effort to boost economic growth and fight high unemployment.