Productivity slows to 1.2 percent rate in Q4

AP News
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Posted: Feb 02, 2017 10:02 AM
Productivity slows to 1.2 percent rate in Q4

WASHINGTON (AP) — The productivity of American workers rose in the October-December period but at a slower pace than the previous quarter. Growth in labor costs increased.

Productivity climbed at an annual rate of 1.3 percent in the fourth quarter, weaker than 3.5 percent productivity growth in the July-September period, the Labor Department reported Thursday. Labor costs rose at a 1.7 percent rate, up from a tiny 0.2 percent gain in the third quarter.

For the year, productivity rose a tiny 0.2 percent. It was the worst showing in five years. Productivity has slowed significantly in recent years for reasons that are unclear. It represents a worrisome trend given that growth in productivity is a key factor needed to boost living standards.

Paul Ashworth, chief U.S. economist at Capital Economics, noted that gains in productivity, the amount of output per hour of work, has been less than 1 percent for six straight years with no sign of a sustained improvement on the horizon.

"The major structural problem is that the brief burst of faster productivity growth triggered by the internet and desktop computers began to fade as long ago as 2004," he said. "New technology may boost productivity again in the future ... but no one knows when exactly."

The fourth quarter slowdown had been expected given that overall economic growth, as measured by the gross domestic product, slowed in the fourth quarter. GDP grew at an annual rate of 1.9 percent in the final three months of the year, compared to a 3.5 percent gain in the third quarter.

Productivity gains have been anemic for the past decade. Since 2007, annual productivity increases have averaged just 1.1 percent. That is less than half the 2.6 percent average annual gain turned in from 2000 through 2007 when the country was benefiting from the increased efficiency from greater integration of computers and the internet into the workplace.

Rising productivity means increased output for each hour of work which allows employers to boost wages without triggering higher inflation. But with productivity slowing, wage gains in many industries have stalled. Federal Reserve Chair Janet Yellen has pointed to the slowdown in productivity growth as a key challenge facing the country.

Analysts are hopeful that companies will put more emphasis on increasing productivity as the labor market hits full employment and the pool of available qualified workers diminishes.