U.S. productivity fell in the fourth quarter of 2012 by the most in almost two years as output increased only slightly despite steady gains in employment, the government said Thursday. The Labor Department reported that productivity—the amount of output per hour of work—contracted at an annual rate of 2 percent in the October-December period, the biggest drop since the first quarter of 2011. Productivity rose at a 3.2 percent annual rate in the July-September quarter. Output rose 0.1 percent in the fourth quarter, while hours worked rose by 2.2 percent, causing productivity to shrink. Economists expect productivity to rebound in the current quarter because weak output during the fourth quarter was partially due to temporary factors like an unusually sharp drop in government military spending. Unit labor costs—a gauge of the labor-related cost for a unit of output—rose at a 4.5 percent rate in the fourth quarter, the fastest gain since the first quarter of 2012. For all of 2012, labor costs were up a modest 0.7 percent, compared to a gain of 2 percent in 2011 and a drop of 1 percent in 2010. The trend in productivity has been weak for the past two years. For all of 2012, productivity rose by only 1 percent, following an even smaller 0.7 percent gain in 2011. Those advances were less than half the average growth that companies saw in 2010 and 2009, shortly after many had laid off workers to reduce costs during the Great Recession. Recent productivity also is below the long-term average annual growth of 2.2 percent dating from 1947. Economists predict worker productivity will be weak through 2013. Higher productivity is typical during and after a recession. Companies tend to fire workers amid declining demand and increase their output from a smaller workforce. Once an economy begins to grow, demand rises and companies eventually must ad workers to keep up.
