Economic Report: U.S. productivity left unchanged at 1.3% in fourth quarter

Productivity among U.S. workers and firms rose 1.3% in the fourth quarter of 2016.

WASHINGTON (MarketWatch) — The increase in productivity among American firms and workers was left unchanged at 1.3% in the fourth quarter, marking the performance in 2016 as the worst in five years.

The government’s first revision of fourth-quarter productivity showed little change in output, hours worked or labor costs.

The increase in output, or how much goods and services companies produce, was raised to 2.4% from 2.2%. Hours worked rose 1% instead of 0.9%.

Productivity increases when output rises faster than hours on the job.

Unit-labor costs advanced 1.7%, the same as the government originally reported. That reflects how much it costs a business to produce one unit of output, such as a ton of coal or a bushel of wheat.

Labor costs rose in 2016 at the fastest pace in nine years, a sign companies have to pay more to employees at a time when a shrinking pool of available workers makes good help harder to find.

In premarket trading, investors brushed off the report. The Dow Jones Industrial Average DJIA, -0.14%  was set to open slightly higher

The only significant change in the latest report was a big increase in productivity among manufacturers. The government revised the gain to 2% from 0.7%.

Also read: ADP reports blowout 298,000 jobs gain for February

As a result, the increase in the industry’s unit-labor costs rose a more manageable 2.4% instead of 3.3%.

The increase in third-quarter productivity, meanwhile, was revised down a few notches to 3.3% from 3.5%. All figures reflect seasonally adjusted annual rates.

Even with a healthy fourth-quarter boost, productivity only rose 0.2% in 2016. That’s the smallest gain since 2011 and maintains a post-recession trend of extremely weak increases in productivity.

Rising productivity is the key to a more vibrant economy: it allows companies to earn bigger profits and invest more while paying higher salaries to employees.

Productivity has averaged 1% growth per year since 2007, compared to a 2.6% rate from 2000 to 2007, and 2.2% growth since the end of World War Two.

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