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Economy in Brief

U.S. 4Q Worker Productivity Revised Down Sharply
by Tom Moeller March 5, 2009

During last year's fourth quarter, labor productivity in the nonfarm business sector fell 0.4% (AR), revised down sharply from last month's indication of a 3.2% increase. The downward revision to 4Q08, however, was offset by upward revisions to prior quarters and for the year, growth was left unchanged at 2.8%, double the gain during all of 2007. The 4Q decline fell short of Consensus expectations for a revision to a 1.5% increase.

Growth in 4Q compensation totaled 5.3% which was upwardly revised from the 5.0% gain indicated last month. That increase bought annual growth in compensation to 3.7% from 4.1% in 2007. Annually, growth in compensation has been quite stable at or slightly below 4% since 2001.

Growth in unit labor costs accelerated sharply last quarter as a result of the productivity revision. It was raised to 5.7% from the 1.8% gain indicated initially. However, though that increase raised growth for the whole year to 0.9% from the 0.5% increase indicated last month, it was still near the weakest in five years.

The downward revision to productivity growth stemmed from a deepened decline in output, now pegged at -8.7%. For the year, however, growth in output was left about unchanged at 0.8% which was the weakest since the recession of 2001. Hours worked fell by an unrevised 8.4% rate last quarter and 1.9% for the full year.

In the factory sector, productivity declined at a little revised 4.0% rate last quarter which was deeper than the rate of decline during the prior two quarters. For the year as a whole, however, manufacturing productivity did rise 1.5%. A decline of 2.5% is in the offing for 2009 due to the recession. Unit labor cost growth in the factory sector surged at a little revised 14.7% rate last quarter as a result of the sharp decline in productivity and it rose at a quickened 2.6% rate for the year. Compensation growth about doubled last quarter to 10.1% and it rose a quickened 4.1% for the whole year.

The productivity & cost figures are available in Haver's USECON database.

Discussion of “Oil and the Macroeconomy: Lessons for Monetary Policy" by San Francisco Fed President Janet L. Yellen is available here.

Nonfarm Business Sector (SAAR, %) 4Q '08 3Q '08 Y/Y 2008 2007 2006
Output per Hour -0.4 2.2 2.2 2.8 1.4 0.9
Compensation per Hour 5.3 5.7 4.1 3.7 4.1 3.8
Unit Labor Costs 5.7 3.5 1.8 0.9 2.7 2.8
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