US productivity growth expected to slow in October-December quarter

Economic IndicatorsAssociated Press

The Labor Department reports its first estimate for productivity in the fourth quarter. The report will be released Thursday at 8:30 a.m. Eastern.

PRODUCTIVITY SLOWS: The expectation is that productivity growth slowed to a rate of 0.8 percent in the October-December quarter, according to a survey of economists by the data firm FactSet. Economists believe labor costs rose slightly to growth at a rate of 1 percent.

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WORKER EFFICIENCY: In the July-September period, the productivity of U.S. workers increased at a modest annual rate of 2.3 percent after growth of 2.9 percent in the April-June quarter. Labor costs fell at an annual rate of 1 percent in the third quarter, the second straight quarterly decline.

Last week, the government reported that the overall economy, as measured by the gross domestic product, grew at an annual rate of 2.6 percent in the October-December quarter, a sharp deceleration from a 5 percent growth rate in the July-September period.

Productivity is the amount of output per hour of work. With less output in the fourth quarter, the expectation is that productivity will slow as well.

Since the recession ended in mid-2009, labor costs have been well contained as millions of people who lost their jobs during the downturn have struggled to find new employment. The unemployment rate fell in December to 5.6 percent, the lowest it has been since 2008.

With the labor market tightening, economists are starting to watch for signs that wage pressures are increasing.

The Federal Reserve keeps a close watch on productivity and labor costs for signs that inflation is nearing unwanted levels.

At the moment, the Fed is hoping that wages will start rising at a stronger pace to help Americans catch up from a prolonged period when wage growth has been very weak.

For the past three years, inflation by the Fed's preferred measure, has been rising at rates well below the Fed's target of 2 percent annual price increases. In recent months, price gains have fallen further below the Fed target as a big drop in oil prices have slashed energy costs and a stronger dollar has made foreign-made goods cheaper for U.S. consumers.

Productivity over the past year has increased by a modest 1 percent, well below the long-run average of 2 percent.2 percent.