Strong U.S. Worker Productivity Drives Down Costs

Worker productivity surged during the fourth quarter. Employers kept a tight hold on costs as the economic recovery began to take hold. The 6.2% (AR) jump in 4Q productivity followed a downwardly revised 7.2% 3Q gain but it pulled growth for the full year up to 3.0%, the fastest since 2003. A 6.0% gain in 4Q productivity was the Consensus expectation.  

The rise in productivity came as output jumped 7.2%. The gain was an acceleration from 2.3% growth during 3Q but it nevertheless left full-year output down 3.6%  Hours-worked (employment times hours) rose 1.0% but for the year fell 6.4% as a tight rein on costs was kept. Growth in compensation costs decelerated sharply from 3Q. The 1.5% gain was the slowest since a 1Q decline and the 2.0% rise was the slowest since 1994.

Stronger productivity and weaker compensation growth pulled 4Q unit labor costs down 4.4%. Except for a slightly greater decline during 1Q, it was the sharpest decline since 2002 and it was enough to pull costs down 0.9% for the year, the first decline since 2002.

The surge in 4Q worker productivity growth reflected vibrancy in the factory sector where employers held a notably tight rein on costs. Productivity gained 7.8% following an upwardly revised 14.4% 3Q jump. For the year, productivity rose 1.4% after a 0.8% rise during 2008. Recent gains have been prompted by quarterly output growth which turned sharply positive by 3Q and continued up at a 6.1% annual rate at yearend. Nevertheless, output fell 11.0% for the year. Hours worked similarly fell but by lesser amounts. Compensation slipped 0.2% but the 4.8% gain earned was the fastest since 2003. Strong productivity and gains in compensation combined to lower unit labor costs by 7.4%, about the same as during 3Q but for the year unit costs rose 3.4%, the strongest rise since 2000.  

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