By MICHAEL SCHROEDER
Staff Reporter of THE WALL STREET JOURNAL
February 4, 2005
WASHINGTON -- U.S. productivity growth slumped in the fourth quarter to the lowest level in nearly four years, signaling that the long boom in worker output is winding down.
Productivity in the nonfarm business sector slowed to a seasonally adjusted annual growth rate of 0.8% from October through December, down from 1.8% in the third quarter, the Labor Department said.
The slower gains of the last half of 2004 brought down full-year productivity growth to 4.1%, a healthy figure but lower than the 4.4% registered the year before, the report said.
"The steadily rising trend in productivity growth that started in 1995 appears to have been broken," said Steven Wood, an economist at Insight Economics.
Productivity refers to the output workers produce for an hour on the job. Over time, wages generally rise at the pace at which productivity grows. Faster productivity growth allows employers to pay higher wages without raising prices. Slower productivity growth makes it harder to do that, and depresses wage growth and increases upward pressure on prices.
Even though productivity is slowing, output continues to increase. Nonfarm workers' output for the full year advanced a robust 5.3%, up from 3.8% in 2003. But growth slipped in the fourth quarter to 2.8% from the previous quarter's 4.2% pace, the Labor Department said.
Continued strong output coupled with slowing output per worker have forced employers to add workers and to lengthen the number of hours they work -- both factors that could translate into higher labor costs.
Workers' hours rose 1.9% in the fourth quarter, down from 2.4% in the previous quarter, while unit labor costs climbed at the fastest pace in 2½ years to 2.3%, compared with a 1.6% increase in the third quarter, the report said. Hourly compensation, adjusted for inflation, was down 0.3% last quarter, compared with an increase of 1.6% in the third quarter of 2004.
Separately, first-time claims for unemployment insurance fell by 9,000 to 316,000 last week, pulling down the four-week average to 332,000 -- evidence of improvement in labor conditions, the department said.
Vigorous productivity growth has served as a powerful buffer against inflation by driving down labor costs. But companies, which have resisted increased hiring in recent years, now are willing to add workers to meet continued strong demand. If productivity growth continues to slide, wage pressures may start to exert upward pressure on inflation.
Inflation concerns ease as government says 146,000 new jobs created; analysts had expected 200,000.
February 4, 2005: 9:47 AM EST
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NEW YORK (CNN/Money) - Bonds rallied Friday after a government report showed the number of jobs created in January was well below analysts' forecasts. The dollar was mixed.
The benchmark 10-year note jumped 20/32 of a point to 101-9/32 to yield 4.09 percent, down from 4.14 Wednesday.
The 30-year bond surged 1-11/32 points to 113-9/32 to yield 4.50 percent, down from 4.58 late Thursday. Bond prices and yields move in opposite directions.
The five-year note added 14/32 to 99-26/32 to yield 3.67 percent, and the two-year advanced 5/32 of a point to 99-23/32, yielding 3.27 percent.
"The numbers today allay any concern that the Fed may adopt a more aggressive stance on interest rates," said Anthony Crescenzi, chief bond market strategist at Miller Tabak & Company. "The employment gains we've seen of late remain modest by historical standards."
The Labor Department report showed employers added 146,000 jobs in January, up from a revised 133,000 the previous month. Economists surveyed by Briefing.com forecast a net gain of 200,000.
Fewer jobs added means less pressure on the labor market to drive up wages, which could contribute to inflation. Bond investors fear inflation as it erodes the value of the fixed-interest paying investment.
The euro bought $1.3030, up form $1.2973 late Thursday. The dollar bought ¥103.56, down from ¥104.44.