Fourth-quarter productivity weakest in four years

Nonfarm productivity fell at its fastest pace in four years in the fourth quarter, but the decline was likely to be temporary as economic growth is expected to pick up after stalling in late 2012.

Productivity fell at a 1.9 percent annual rate, the weakest pace since the fourth quarter of 2008, the Labor Department said on Thursday. A month ago it estimated that productivity, which measures hourly output per worker, fell at a 2 percent pace.

It had increased at a 3.1 percent rate in the third quarter. Economists polled by Reuters had expected the decline productivity to be revised to a 1.6 percent rate.

The drop largely reflects a surge in hiring while output continued to expand at a slower pace. The economy added about 600,000 jobs the fourth quarter, but gross domestic product only grew at a 0.1 percent rate.

Growth is expected to accelerate in the first quarter, although the pace is not expected to be above 2 percent as the economy adjusts to tighter fiscal policy.

Unit labor costs - a gauge of the labor-related cost for any given unit of output - rose at a 4.6 percent rate in the fourth quarter rather than 4.5 percent, the report showed.

Labor costs were up only 2.1 percent from a year-ago, underscoring the lack of wage-related inflation pressures in the economy and helping to keep the door open to further monetary easing by the Federal Reserve to stimulate the economy.

In testimony to Congress last week, Fed Chairman Ben Bernanke signaled the central bank would press forward with plans to buy $85 billion in bonds per month.

Worker hours rose at a 2.5 percent rate in the fourth quarter, while nonfarm output increased at a 0.5 percent pace.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)