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Economic Report: U.S. productivity in the fourth quarter was worse than initially forecast

U.S. productivity in the fourth quarter was revised lower while unit labor costs climbed more than expected, the government said Thursday. Read More...

This version corrects the year-on-year decline in productivity in the fourth quarter.

The numbers: The productivity of American workers rose by a revised 1.7% annual rate in the fourth quarter, the Labor Department said Thursday.

The increase was originally put at 3% in the government’s preliminary report last month.

Economists polled by the Wall Street Journal has expected a reading of 2.5% annual rate.

Productivity declined fell a revised 1.8% in the fourth quarter compared with the same quarter of 2021, revised from the prior reading of a 1.5% decline.

Annual average productivity fell 1.7% in 2022. That’s the largest decline since 1974. The average rose 2.2% in the prior year.

Key details: Unit labor costs climbed by a 3.2% annual pace in the fourth quarter, compared to the preliminary 1.1% increase.

Economists were expecting a 1.4% gain.

Output was revised down to 3.1% from 3.5%. Hours worked rose a revised 1.4% compared with the initial estimate of 0.5%.

What they are saying: “We surged in productivity coming out of the pandemic. So now this is the correction period, So we shouldn’t get too depressed about the low productivity numbers,” said Carl Riccadonna, chief U.S. economist at BNP Paribas, in an interview on Bloomberg Television.

Big picture: Productivity is the secret sauce of the economy. It allowed the economy to grow strongly with no inflation in the 1990s, but lately has been weak.

At the same time, unit labor costs are rising too quickly to get inflation to fall back to the Federal Reserve’s 2% target.

“It is difficult to tell an upbeat story about productivity. but some people are trying,” said Robert Brusca, chief economist at FAO Economics, ahead of the report.

Market reaction: Stocks DJIA, +0.22% SPX, -0.31% were expected open mixed on Thursday. The yield on the 10-year Treasury note TMUBMUSD10Y, 4.063% rose to 4.07% in early trading.

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