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Nonfarm business sector labor productivity increased at an annual rate of 6.2 percent during the fourth quarter of 2009. Over the last four quarters, productivity increased 5.1 percent.


U.S. productivity grew in 2009, possible sign of job growth ahead

by Tara Lachapelle
Feb 04, 2010


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Tara Lachapelle/MEDILL

Manufacturing, a large industry in Chicago, saw productivity increase 7.8 percent in the U.S. in the fourth quarter of 2009. Over the last four quarters, manufacturing productivity grew 6.5 percent.

The productivity of the U.S. labor force, a key measure of economic output, rose for the fourth consecutive quarter, the Bureau of Labor Statistics said Thursday in its preliminary report for 2009.

Nonfarm business sector labor productivity increased at a seasonally adjusted rate of 6.2 percent during the fourth quarter. Over the last four quarters, productivity increased 5.1 percent. That was the most since the first quarter of 2002 when output per hour rose 6.1 percent from the year-ago quarter.

“We’ve had a very strong surge in labor force productivity,” said Russell Price, an economist from Ameriprise Financial Inc. “It’s very rare to get three quarters in a row to the magnitude that we’ve seen. Going back to the Great Depression, I think we’ve only seen situations such as this once or twice.”

The gain in productivity reflects a 7.2 percent increase in output divided by a 1 percent increase in hours worked. “Businesses across the country are getting a lot more work out of the labor force they already have,” Price said.

The BLS said unit labor costs in nonfarm businesses fell 4.4 percent in the fourth quarter as increased productivity outpaced an increase in hourly compensation. Higher wages tend to push up unit labor costs, while increased output per hour tends to reduce these costs.

Price said the drop is a reflection of aggressive cost cutting and staff reductions businesses have made over the last two years. “Businesses are really getting down to the bare bones as far as their current staffing levels,” he said.

Lower unit labor costs are typically good for companies’ profit margins, but Price said cost-cutting measures eventually hit a wall.

“You really can’t push the current staff levels much further without having to actually hire people, or else you’re going to be left not being able to meet demand,” he said. "Historically, this has been a very favorable indicator for job growth in the months ahead."

Over the last four quarters, unit labor costs declined 2.8 percent as wages grew 2.2 percent. This decline in unit labor costs was the largest since its 3.2 percent drop over the four quarters ending with the first quarter of 2002.

Manufacturing sector productivity grew 7.8 percent in the fourth quarter on a 6.1 percent increase in output and a 1.6 percent decline in hours worked. Over the last four quarters, manufacturing productivity grew 6.5 percent as output decreased 4.4 percent and hours fell 10.2 percent.

Unit labor costs in manufacturing declined 7.4 percent in the fourth quarter of 2009, a 3.2 percent decrease from the year-ago quarter and a reflection of widespread layoffs.

The BLS will release its revised productivity and costs report March 4. The revised numbers are adjusted based on the economy’s estimated output,  which is known as gross domestic product. Price said he does not expect a significant change in the figures.