U.S. nonfarm productivity grew as expected in the fourth quarter, but the pace is slowing, implying companies may no longer be able to wring more output from workers and will need to step-up hiring to meet rising demand.
Productivity increased at an unrevised 2.6% annual rate, the Labor Department said on Thursday. The growth pace was in line with economists' expectations.
Productivity, a measure of hourly output per worker, grew at a 2.3% pace in the third quarter. For the whole of 2010, productivity expanded 3.9% the fastest pace since 2002.
The government also published its annual benchmark revisions.
Productivity grew rapidly as the economy emerged from the worst recession since the Great Depression of the 1930s, peaking at an 8.9% rate in the second quarter of 2009 as businesses slashed costs by relying on a small pool of workers. The pace is slowing, which economists say will compel businesses to soon add more workers to expand production.
While the recovery is steadily gaining momentum and broadening out from manufacturing, labor market healing has been unusually slow. The economy grew at a 2.85 annual rate in the fourth quarter after rising at a 2.6% pace in the prior period.
The productivity report showed hours worked in the fourth quarter rose at a 1.4% rather than 1.8% rate. Hours worked increased 1.4% in the July-September quarter.
Unit labor costs, a gauge of potential inflation pressures closely watched by the Federal Reserve, fell at an unrevised 0.6% rate. Labor costs edged up 0.1% rate in the third quarter.
Depressed unit labor costs will help to keep inflation pressures contained at a time when rising oil prices are pushing up input costs for many businesses.
Economists had expected unit labor costs to drop at a 0.5% rate in the fourth quarter. For the whole of 2010, unit labor costs fell 1.5% after declining 1.6% in 2009.