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U.S. productivity rebounds in fourth-quarter

The numbers: U.S. productivity rose at a 3% annual clip in the fourth quarter, the government said Thursday. That’s the fastest pace for the year.

Economists surveyed by the Wall Street Journal had projected a 2.5% increase. 

In all of 2022, U.S. productivity declined at a 1.3% rate. That’s the lowest annual rate since 1974. Some economists point to the post-pandemic return of workers in sectors like leisure and hospitality and health care.

Key details: Output in the fourth quarter rose 2.3%. Hours worked rose 0.5%.  Outside of the pandemic, that is the lowest level of hours worked since the fourth quarter of 2019.

Unit-labor costs, a key measure of wages, rose 1.1% in the fourth quarter. That’s down from a 2% rate in the third quarter. Economists has expected a 1.5% gain.  

For all of 2022, unit labor costs rose 5.7%. That’s the fastest pace since 1982.

Real hourly compensation rose 1% in the fourth quarter after a 2.2% drop in the prior quarter. For the year, real compensation is down 3.4%.

Productivity in the manufacturing sector fell at a 1.5% rate in the fourth quarter and was down 0.9% for the year.

Big picture: If the fourth quarter trends continue, productivity could be returning to a rising trend. But that is a big if.

It remains an open question how the trend of working from home impacts productivity.

Unit labor costs reflects higher wages. Economists said the gain was not consistent with the Fed’s 2% target.

What economists are saying? “Productivity plays a critical role in inflation dynamics: if companies can generate strong productivity growth, they can preserve their margins despite a rising wage bill without fueling inflation. However, the latest trend suggests businesses still can’t count on a sustained productivity revival. And with companies’ pricing power fading amid slower demand, we expect more profit margin compression in coming quarters,” said Lydia Boussour, senior economist at EY Parthenon.

Market reaction: Stocks



opened mixed on Thursday following Fed Chairman Jerome Powell’s news conference. The yield on the 10-year Treasury note

slipped to 3.36%.

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