U.S. productivity grew late last year at three times the expected pace, while labor cost increases slowed sharply, showing that the deepening recession has removed the threat of inflation. The Labor Department reported that productivity rose at an annual rate of 3.2 percent in the fourth quarter of last year, far above the 1.1 percent increase that economists had expected. The October-December performance was double the 1.5 percent rise in productivity in the third quarter. The jump in productivity happened in a quarter when overall economic activity, measured by gross domestic product (GDP), fell at an annual rate of 3.8 percent, the biggest drop in 26 years. Productivity—the amount of output per hour of work—was able to increase sharply because the number of hours worked during the quarter fell at a faster rate than output declined, reflecting the massive wave of layoffs that occurred at the end of 2008. For all of last year, productivity rose by 2.8 percent, double the 1.4 percent increase in 2007, and the best performance since a similar rise in 2004.
