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WASHINGTON (AP) — U.S. worker productivity was even weaker than first thought from October through December while labor costs rose at a faster rate.
Productivity declined at an annual rate of 2.2 percent in the fourth quarter, weaker than the 1.8 percent drop that was estimated a month ago, the Labor Department said Thursday. Labor costs rose at a 4.1 percent rate, faster than the 2.7 percent increase first estimated.
Weaker productivity and higher labor costs could spell inflation troubles for the economy. But analysts say that the changes in the fourth quarter are temporary and not an indication that inflation is about to be a problem.
Analysts had expected the revision for productivity would be weaker than the first estimate, reflecting the fact that the government last week revised its estimate for economic growth, as measured by the gross domestic product.
The GDP, the nation's total output of goods and services, was revised down to growth of just 2.2 percent in the fourth quarter, slower than the initial estimate of 2.6 percent. Productivity is the amount of output per hour of work and with less output in the fourth quarter, productivity was revised lower as well.
The Federal Reserve closely watches developments in productivity and labor costs for any signs that wage pressures are rising to unwanted levels. But at the moment, the Fed is more worried that wages are not rising fast enough rather than rising too quickly.
For all of 2014, labor costs were up a modest 1.8 percent after a slight 0.2 percent gain in 2013. Productivity for all of 2014 was up just 0.7 percent, similar to the 0.9 percent gain in 2013.
Doug Handler, chief U.S. economist at Global Economics, said that 2014 was the fourth straight year that productivity has run below its average over the past decade of 1.5 percent.
Handler said the recent strong employment growth represents a challenge for companies to make sure they are utilizing their new hires in the most effective manner. But he predicted that the new workers will gain the skills they need to be more productive and this will help push productivity up to a range of 1.5 percent to 2 percent starting in 2016.
Job growth picked up significantly last year and unemployment stood at 5.7 percent in January, an improvement from the high of 10 percent unemployment hit in late 2009.
Even with the labor market improving, economists expect it will be some time before labor costs accelerate to a rate that will be a problem.
For all of 2014, labor costs were up a modest 1.8 percent after a slight 0.2 percent gain in 2013. Productivity for all of 2014 was up just 0.7 percent, similar to the 0.9 percent gain in 2013.
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