US Productivity Decreased by Less Than Expected in Q4

U.S. nonfarm productivity fell less steeply than previously thought in the fourth quarter, but still pushed up labor-related costs as companies employed more workers to raise output.

The Labor Department said on Thursday that productivity, which measures hourly output per worker, decreased at a 2.2 percent annual rate and not the 3.0 percent pace it reported last month. It was still the biggest drop since the first quarter of 2014.

Economists polled by Reuters had expected fourth-quarter productivity would be revised to show it contracting at a 3.2 percent rate. Productivity increased at a 2.0 percent rate in the third quarter and rose only 0.7 percent in 2015 – the smallest gain since 2013.

The weak productivity reflects a slowdown in gross domestic product growth during the quarter and an acceleration in the pace of hiring.

Economic growth slowed to a 1.0 percent rate in the final three months of 2015 from a 2.0 percent pace in the third quarter, while nonfarm payrolls increased by an average 279,000 jobs per month.

Productivity increased at a annual rate of less than 1.0 percent in each of the last five years. The average annual rate of productivity growth from 2007 to 2015 was 1.2 percent, well below the long-term rate of 2.2 percent from 1947 to 2015.

While weak productivity has boosted employment growth as companies hire more workers to increase output, sustained weakness could undermine Americans’ living standards. Soft productivity has significantly lowered the economy’s long-run potential.

Economists blame the weakness on a lack of investment, which they say has led to an unprecedented decline in capital intensity. Some also believe productivity is being mismeasured, especially on the information technology side.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza