Ahead of the Bell: US productivity

US productivity growth likely slowed in October-December quarter

Associated Press
Ahead of the Bell: US productivity
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FILE - In this Thursday, Oct. 10, 2013, file photo, employees at Sheffield Platers Inc. work on the factory floor in San Diego. The Commerce Department estimates U.S. company productivity and costs for the October-December quarter on Thursday, Feb. 6, 2014. (AP Photo/Lenny Ignelzi, File)

WASHINGTON (AP) -- The Labor Department issues a revised look at productivity for the October-December quarter. The report will be released at 8:30 a.m. EST Thursday.

SLOWER GROWTH: The forecast is that productivity grew at an annual rate of 2.5 percent in the fourth quarter, according to a survey of economists by FactSet. That would be slightly slower than the 3.2 percent rate initially estimated. The analysts expect labor costs fell at an annual rate of 0.8 percent in the fourth quarter, rather than the 1.6 percent rate of decline previously estimated.

GDP GROWTH LOWER: Productivity is the amount of production per hour of output. The reason economists are looking for slower productivity growth is that output as measured by the gross domestic product was revised lower last week.

The fourth quarter growth rate for GDP, the nation's total output of goods and services, was revised to 2.4 percent, down from the initial estimate of a 3.2 percent growth rate.

With less output, the growth in productivity is expected to be revised lower.

For all of 2013, productivity rose a slight 0.6 percent, down from a 1.5 percent increase in 2012. It was the weakest annual performance since a 0.5 percent rise in 2011. Labor costs edged up a slight 1 percent in 2013, continuing a trend of modest gains in labor costs.

Economists believe with a stronger economy in 2014, productivity will show gains as well. Analysts at JPMorgan are forecasting that productivity will increase by 2.1 percent in 2014.

Greater productivity raises living standards because it enables companies to pay their workers more without having to raise prices which could boost inflation.

The Federal Reserve monitors productivity and labor costs for any signs that inflation could pick up. Mild inflation has allowed the Fed to keep short-term interest rates at record lows and purchase bonds to try to keep long-term rates down.

The Fed in December and again in January announced that it was reducing its monthly bond purchases, taking them from $85 billion per month down to $65 billion.

But at the same time, the Fed strengthened its commitment to keep short-term rates low for an extended period. It expects to keep those rates low "well past" the time that unemployment dips below 6.5 percent. The unemployment rate in January dropped to 6.6 percent.

The Fed has the room to keep interest rates at record lows to boost the economy because inflation is running well below the central bank's 2 percent target.

In records going back to 1947, productivity has been growing by about 2 percent per year.

In 2010 and 2011, productivity increased at annual rates above 3 percent. That reflected the fact that millions of Americans were laid off as companies struggled to cope with a deep downturn. While output was down as well, the number of workers fell more, increasing the rate of productivity. But after that initial jump, productivity has slowed in recent years.

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