U.S. worker productivity rebounded at a slower rate than previously reported in the fourth quarter of 2019 while unit labor costs rose moderately, suggesting inflation will remain tame.
The Labor Department reported Thursday that nonfarm productivity, which measures hourly output per worker, increased at a 1.2% annualized rate last quarter, down from its February estimate of 1.4% growth.
Productivity still rallied significantly, however, from the 0.3% contraction in the July-September period that was the biggest decline in almost four years. Economists polled by Reuters had expected productivity would be unrevised at a 1.4% growth rate in the fourth quarter.
As Reuters reports, sluggish productivity has been “one of the reasons the economy has struggled to achieve the Trump administration’s target of 3% annual growth.” It increased at an average annual rate of 1.3% from 2007 to 2019, below the long-term rate of 2.1% from 1947 to 2019.
“Some economists blame tepid productivity on a shortage of workers as well as the impact of rampant drug addiction in some parts of the country,” while others cite low capital expenditure, Reuters noted.
With productivity rebounding in the fourth quarter, unit labor costs — the price of labor per single unit of output — rose at a revised 0.9% rate. They had increased at a 2.5% rate in the previous quarter.
Compared with the fourth quarter of 2018, labor costs grew at a 1.7% rate. “Labor costs gained 1.7% in 2019 after rising 1.8% in 2018, suggesting inflation will probably continue to run below the Federal Reserve’s 2% target” even as the labor market has tightened, Reuters said.
Hours worked rose at a 1.2% rate in the fourth quarter, rather than the 1.1% pace estimated in February.
“There is hope that the recent slight productivity uptick may lead to better results in the future,” the Associated Press said, noting that productivity and growth in the labor market determine the economy’s long-run ability to grow.
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