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U.S. Productivity Gains Cooled Last Quarter; Labor Costs Rose

The latest slowdown -- following a third-quarter gain that ended the longest streak of productivity declines since 1979 -- underscores the challenge of developing a sustained pickup.

Worker productivity in the U.S. cooled in the fourth quarter following the biggest jump in two years, resuming the weak efficiency gains that have plagued the expansion.

The measure of employee output per hour increased at a 1.3% annualized rate, after a revised 3.5% rise in the prior three months, Labor Department figures showed Thursday in Washington. The median projection in a Bloomberg survey called for a 1% gain. Expenses per worker rose at a 1.7% pace.

The latest slowdown -- following a third-quarter gain that ended the longest streak of productivity declines since 1979 -- underscores the challenge of developing a sustained pickup. With wage growth remaining below pre-recession levels, businesses have relied on more hiring rather than investing in technology to increase efficiency.

Economists’ estimates for productivity ranged from no change to a gain of 2%. The reading for the prior quarter was initially reported as a 3.1% gain.

Unit labor costs, which are adjusted for efficiency gains, were forecast to rise at a 1.9% rate in the fourth quarter, according to the Bloomberg survey median. They increased 0.2% in the prior quarter, revised from a previously reported advance of 0.7%.

Productivity increased 1% from the fourth quarter of 2015. Labor costs rose 1.9% from a year earlier.

Real Earnings

Adjusted for inflation, hourly earnings fell at a 0.4% rate last quarter, the second drop in 2016, after increasing at a 2.1% pace.

Output rose at a 2.2% rate, following a 4.2% gain.

Hours worked advanced at a 0.9% pace, after rising 0.6%. Compensation for each hour worked increased at a 3% annual pace.

The latest reading on productivity is in line with the 1.1% average annual increase over the period spanning 2007 to 2016. It lags the 2.6% average gain from 2000 to 2007.

Among manufacturers, productivity rose at a 0.7% rate in the fourth quarter after being little changed in the previous three months.

Weak productivity weighs on corporate profits, in addition to restraining economic growth from gaining momentum in the longer term.

The economy expanded at a 1.9% pace last quarter following a 3.5% rate in the July-to-September period, according to previously released Commerce Department data.

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