1. Headline
  1. Headline
By
updated 3/4/2010 11:12:34 AM ET 2010-03-04T16:12:34

Productivity in the final three months of last year surged at a faster pace than previously thought as labor costs fell more rapidly.

  1. Stories from
    1. It's a Girl for Ashton Kutcher and Mila Kunis
    2. Elisabeth Röhm's Blog: Gone Baby Gone
    3. See the Stunning Photos From the Little People, Big World Wedding
    4. Pennsylvania Parents Charged with Homicide in Starvation Death of 9-Year-Old Son
    5. Shailene Woodley Dyes Her Pixie Bright Blonde! (PHOTO)

The Labor Department reported Thursday that productivity jumped at an annual rate of 6.9 percent in the fourth quarter, even better than an initial estimate of a 6.2 percent growth rate. Unit labor costs fell at a rate of 5.9 percent, a bigger drop than the 4.4 percent decline initially estimated.

The combination of rising productivity and falling labor costs bolsters company profits and helps keep inflation at bay. But it also puts American households under stress, leaving them with less income to increase consumer spending, the key ingredient to economic growth.

Productivity has posted sizable increases for three straight quarters as companies squeezed more output from their reduced work forces. Companies, struggling with the deepest recession in decades, have cut 8.4 million jobs over the past two years.

Those job losses and fears of even more layoffs have kept a lid on wage increases and overall inflation. That has given the Federal Reserve the leeway to push a key interest rate to a record low and keep it there for more than a year in an effort to jump-start economic growth.

Economists believe that businesses at some point will have to start rehiring workers because they are close to exhausting the amount of growth they can achieve with their depleted work forces.

The productivity growth rate of 6.9 percent surpassed expectations for only a modest 0.1 percentage point rise from last month's initial estimate of a 6.2 percent growth rate. Productivity is the amount of output per hour of work.

Graph: Productivity

The revision reflected the fact that the government last week revised up its initial estimate for total economic output, as measured by the gross domestic product, to show a rise of 5.9 percent in the fourth quarter. That was up from an initial estimate that GDP was growing at an annual rate of 5.7 percent in the fourth quarter.

While the 5.9 percent GDP increase was the fastest growth pace in six years, two-thirds of that strength reflected a slowdown in the pace at which businesses are cutting inventories. That inventory swing is expected to be temporary.

The worry is that the economic rebound could falter in coming months if unemployment remains high and consumers don't have the income growth needed to boost spending. Consumer spending accounts for 70 percent of total economic activity.

For all of 2009, productivity among nonfarm workers rose by 3.8 percent, nearly double the 2 percent increase in 2008. It was the fastest annual increase in productivity since a 4.6 percent increase in 2002, another year when the country was struggling to emerge from a recession.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

More on TODAY.com

  1. Joan Lunden: 10 things I wish I knew before I was diagnosed with breast cancer

    From the moment you hear the words ‘You have breast cancer,’ it’s almost like you’re shot out of a cannon. Here are 10 things I wish I knew before I was diagnosed.

    10/1/2014 10:52:45 AM +00:00 2014-10-01T10:52:45
  2. Want to help? A guide to breast cancer charities

    In the United States an estimated 296,000 women and 2,240 men will be diagnosed with breast cancer this year and almost 40,000 women and 410 men will die of the disease. That's one death every 14 minutes, according to the National Breast Cancer Coalition.

    10/1/2014 10:45:11 AM +00:00 2014-10-01T10:45:11
  3. Samantha Okazaki / TODAY
  1. Nbc News

    9 things we learned from Brian Williams' Facebook chat

    10/2/2014 1:41:28 AM +00:00 2014-10-02T01:41:28
  1. Noel Vasquez / Getty Images Contributor

    Mila Kunis,  Ashton Kutcher welcome baby girl

    10/2/2014 1:24:09 AM +00:00 2014-10-02T01:24:09
  1. Kevin Lamarque / Reuters

    Secret Service director resigns amid scandal

    10/1/2014 7:30:52 PM +00:00 2014-10-01T19:30:52
  1. Texas Ebola patient had contact with kids

    Texas Gov. Rick Perry said in a press conference on Wednesday that “some school-age children” had been identified as having contact with the man diagnosed with the first case of Ebola in the United States. 

    10/1/2014 5:37:52 PM +00:00 2014-10-01T17:37:52