US productivity falls at 0.1 per cent rate in fourth quarter

WASHINGTON – U.S. productivity edged down at a 0.1 per cent rate in the fourth quarter. It was the weakest showing in nearly two years and further evidence of the struggles the country is having boosting worker efficiency.

The fourth quarter decline followed a much stronger 2.7 per cent gain in the third quarter, the Labor Department reported Thursday. Labor costs increased at a 2 per cent rate in the fourth quarter after two quarters of declines.

For the year, productivity rose 1.2 per cent, a rebound from a decline of 0.1 per cent in 2016, which had been the first annual decline in 34 years. But the rebound still left the average productivity gain over the last decade at 1.2 per cent, less than half the 2.6 per cent average annual increases seen from 2000 to 2006.

In a separate report, the government said the number of Americans filing applications for unemployment benefits edged down last week by 1,000 to 230,000. These weekly applications, a proxy for layoffs, have been below 300,000 for more than three years, the longest stretch in more than four decades.

The government on Friday will report the unemployment rate for January. It has been at a 17-year low of 4.1 per cent for the past three months and some economists are looking for it to dip to 4 per cent in January.

The 0.1 per cent dip in productivity in the fourth quarter was the first quarter decline in productivity since a 1.2 per cent drop in the first quarter of 2016.

Productivity, the amount of output per hour of work, is the key factor governing rising living standards. If productivity is increasing it allows companies to pay their workers more without having to boost the cost of their products, a move that can increase inflation.

Finding a way to increase productivity is seen as the biggest challenge facing the economy right now.

Without improvements in productivity, the Trump administration will have a time achieving its goal of doubling the rate of economic growth to 3 per cent or better. An economy’s potential for growth is determined by growth in the labour force, which is primarily governed by birth rates and immigration, and the growth in productivity.

For the fourth quarter, GDP grew at an annual rate of 2.6 per cent, a solid performance but down slightly from the gains of just above 3 per cent in the second and third quarters of last year.