Increase in productivity helps to restrain labor costs

The productivity of U.S. workers rose more than projected in the fourth quarter as the world’s largest economy expanded, helping to restrain labor costs. More

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Increase in productivity helps to restrain labor costs

Posted 2/6/14

WASHINGTON – The productivity of U.S. workers rose more than projected in the fourth quarter as the world’s largest economy expanded, helping to restrain labor costs.

The measure of employee output per hour increased at a 3.2 percent annualized rate, after a revised 3.6 percent gain in the prior three months that was more than initially reported, a Labor Department report showed Thursday in Washington. The median forecast in a Bloomberg survey of economists called for a 2.8 percent advance in the fourth quarter. Expenses per worker decreased at a 1.6 percent pace, more than estimated.

A pickup in demand may induce companies, which have been wringing efficiency gains from existing staff, to take on more employees. A report tomorrow may show payrolls in January increased more than twice as much as the prior month, and the unemployment rate held at a five-year low, according to the median estimate in a Bloomberg survey.

“The acceleration in the economy drove productivity in the second half of the year,” said Thomas Simons, an economist at Jefferies LLC in New York. “We’ll see productivity cool off a bit from here as firms increase hiring.”

The back-to-back gains in efficiency were the strongest since the second half of 2009. Estimates of the 61 economists surveyed for fourth-quarter productivity ranged from gains of 1.5 percent to 4 percent. The prior quarter’s reading was previously reported as an increase of 3 percent.

For all of 2013, productivity grew 0.6 percent, Thursday’s figures showed. The advance was the smallest since 2011. Labor expenses increased 1 percent last year.

Labor costs

Unit labor costs, which are adjusted for efficiency gains, were forecast to drop 0.7 percent in the fourth quarter, according to the Bloomberg survey median. They decreased 2 percent in the prior quarter.

Adjusted for inflation, hourly earnings rose at a 0.6 percent rate, after decreasing at a 1 percent pace.

Output rose at a 4.9 percent rate, following a 5.4 percent jump in the prior quarter.

Hours worked climbed at a 1.7 percent pace for a second straight quarter. Compensation for each hour worked rose at a 1.5 percent annual pace in the final three months of 2013.

Among manufacturers, productivity increased at a 2 percent rate.

The U.S. expanded at a 3.2 percent annualized rate in the final three months of 2013 as consumer spending climbed at the fastest pace in three years, Commerce Department data showed on Jan. 30. For all of 2013, the economy expanded 1.9 percent after 2.8 percent in the prior year.

Rising demand is helping underpin the recovery in the labor market. Payrolls probably grew by 185,000 workers in January, after a 74,000 gain in December, according to the median forecast of economists surveyed by Bloomberg ahead of payrolls figures due tomorrow. The unemployment rate held at 6.7 percent, the lowest since October 2008, they predicted.

Improvement in economic growth and in the job market are among reasons that Federal Reserve officials in January decided to trim monthly bond purchases by $10 billion to $65 billion.

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