U.S. Productivity Rose Less Than Forecast in Fourth Quarter

(Bloomberg) --

Productivity in the U.S. rose less than forecast in the closing months of 2019, indicating the efficiency gains are settling back to their sluggish trend.

Nonfarm business employee output per hour increased at a 1.4% annualized rate in the fourth quarter, according to Labor Department figures Thursday. That was smaller than the 1.6% projection in Bloomberg’s survey of economists and followed a 0.2% decline in the third quarter. Unit labor costs were also up at a 1.4% rate following a 2.5% pace in the previous three months.

While productivity growth averaged 1.7% for all of last year, the best since 2010, efficiency gains have been lackluster in the current expansion. Subdued productivity has been a long-running topic of debate among economists. In an October 2019 speech, Federal Reserve Chairman Jerome Powell pointed out several possible reasons, including that the productivity slowdown may be overstated due to mismeasurement.

Weak productivity may explain the more moderate pace of wage growth during the expansion. Powell said recently that pay gains have been roughly in line with the growth of productivity and inflation. Considering the significant slowdown in business investment in equipment last year, the outlook for a larger pickup in efficiency is not bright, which in turn limits the economy’s long-term growth potential.

Earlier this week, former Fed Chair Janet Yellen said slow productivity growth is a “huge concern.”

Thursday’s report showed output improved to 2.5% from the prior period, while hours worked moderated to a 1.1% pace.

For all of 2019, labor costs increased 2% on average, similar to the gains in the prior two years.

The report showed inflation-adjusted hourly compensation averaged a 1.9% pace in 2019, the biggest gain since 2015.

A separate Labor Department report out Thursday showed filings for unemployment benefits fell to the lowest level since April, indicating companies’ reluctance to dismiss workers in a tight job market.

--With assistance from Chris Middleton.

To contact the reporter on this story: Reade Pickert in Washington at epickert@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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