U.S. productivity down 3 percent in 4th quarter

  • Associated Press
  • Thursday, February 4, 2016 2:57pm
  • Business

WASHINGTON — U.S. productivity fell sharply in the final three months of 2015, closing out a fifth straight year of weak gains in worker efficiency.

The Labor Department said Thursday that productivity — the amount of output per hour of work — fell at an annual rate of 3 percent in the fourth quarter. It was the biggest quarterly decline in nearly two years.

Productivity last year edged up a slight 0.6 percent after a tiny 0.7 percent gain in 2014. It has been weak since 2011, a troubling development given that productivity is a key ingredient needed for rising living standards. Rising productivity enables businesses to pay employees higher wages without having to boost the cost of the products and services they sell.

Labor costs rose 4.5 percent in the fourth quarter but were up a more modest 2.4 percent for the year.

The Federal Reserve keeps watch on both productivity and labor costs as the factors it considers in determining how fast to raise interest rates to keep inflation under control. The Fed is not expected to accelerate rate hikes as long as labor costs are growing at such low levels.

Last week, the government reported that total output, as measured by the gross domestic product, slowed to a meager 0.7 percent growth rate in the fourth quarter. GDP had expanded at a faster 2 percent rate in the July-September period.

Productivity recently has been growing well below the 2.1 percent average gains seen over the past 67 years. It had accelerated for a decade starting in 1995. Those gains were attributed to improvements in computer software and the introduction of technology that helped workers do their jobs more efficiently.

Some economists believe the recent slowdown in productivity is partly the result of a drop in business investment in new equipment. They expect it to accelerate once business investment spending begins to increase at a faster clip. But other economists are worried that the country may be stuck in a prolonged period of weak productivity growth.

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