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US productivity gains cooled last quarter; labour costs rose

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Worker productivity in the US cooled in the fourth quarter following the biggest jump in two years, resuming the weak efficiency gains that have plagued the expansion.

[WASHINGTON] Worker productivity in the US cooled in the fourth quarter following the biggest jump in two years, resuming the weak efficiency gains that have plagued the expansion.

The measure of employee output per hour increased at a 1.3 per cent annualised rate, after a revised 3.5 per cent rise in the prior three months, Labor Department figures showed Thursday in Washington. The median projection in a Bloomberg survey called for a one per cent gain. Expenses per worker rose at a 1.7 per cent pace.

The latest slowdown - following a third-quarter gain that ended the longest streak of productivity declines since 1979 - underscores the challenge of developing a sustained pickup. With wage growth remaining below pre-recession levels, businesses have relied on more hiring rather than investing in technology to increase efficiency.

Economists' estimates for productivity ranged from no change to a gain of two per cent. The reading for the prior quarter was initially reported as a 3.1 per cent gain.

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Unit labour costs, which are adjusted for efficiency gains, were forecast to rise at a 1.9 per cent rate in the fourth quarter, according to the Bloomberg survey median. They increased 0.2 per cent in the prior quarter, revised from a previously reported advance of 0.7 per cent.

Productivity increased one per cent from the fourth quarter of 2015. Labour costs rose 1.9 per cent from a year earlier.

Adjusted for inflation, hourly earnings fell at a 0.4 per cent rate last quarter, the second drop in 2016, after increasing at a 2.1 per cent pace.

Output rose at a 2.2 per cent rate, following a 4.2 per cent gain.

Hours worked advanced at a 0.9 per cent pace, after rising 0.6 per cent. Compensation for each hour worked increased at a three per cent annual pace.

The latest reading on productivity is in line with the 1.1 per cent average annual increase over the period spanning 2007 to 2016. It lags the 2.6 per cent average gain from 2000 to 2007.

Among manufacturers, productivity rose at a 0.7 per cent rate in the fourth quarter after being little changed in the previous three months.

Weak productivity weighs on corporate profits, in addition to restraining economic growth from gaining momentum in the longer term.

The economy expanded at a 1.9 per cent pace last quarter following a 3.5 per cent rate in the July-to-September period, according to previously released Commerce Department data.

BLOOMBERG

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