US productivity declined by 0.6 per cent in the final three months of last year, the first fall in almost five years and a disappointment to analysts who had expected a modest rise.
There were also worrying signs of a rise in unit labor costs, which climbed 3.5 per cent – the biggest jump in a year.
Since worker compensation represents the lion’s share of costs for most companies, this measure is closely watched as an indicator of inflationary pressures.
But despite the alarming headlines, some analysts argued that the figures were probably an aberration. There are signs that productivity growth has been moderating. In 2003 the average productivity increase was 3.8 per cent, falling to 3.4 and 2.7 per cent in the following two years.
Even so, said Nigel Gault, chief US analyst at Global Insight, a consultancy, growth is expected to rebound in the first quarter and will take productivity growth higher with it.
In spite of Thursday’s unit labour cost figures, there is little evidence that worker compensation is rising too rapidly. Thursday’s figures also showed real hourly compensation falling 0.4 per cent. Earlier this week the Employment Cost Index showed compensation rising just 3 per cent over the year – down from 3.8 per cent in 2004.
“Anybody who believes that unit labour costs are getting out of control on the basis of today’s figures would be making a mistake,” said Mr Gault. Other analysts said the figures might have been affected by a bad hurricane season.
“This decline in productivity does not represent a structural slowing in productivity growth,” said Augustine Faucher, an analyst at Economy.com, a consultancy.
“Instead, it is a one-time event tied to specific factors, including last fall’s hurricanes. The number will be revised higher, and productivity growth will rebound in 2006 to its underlying trend of about 2 per cent.”
Manufacturing productivity rose by 3.9 per cent in the fourth quarter, comprising an 8.2 cent increase in durables and a 1 per cent decline in non-durables. Manufacturing unit labour costs fell 1.9 per cent in the last three months of the year.
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