4th Quarter Productivity, Unit Costs

Productivity in the US non-farm business sector slowed to a 1.8% annual rate over the last three months of 2007. This number is a positive, since economists had forecast a much smaller 0.8% increase, but it is down from a revised 6.0% increase in the 3rd quarter.

Productivity, or output divided by hours worked, increases profit margins and real wages, since more is being produced with less. This, in turn, becomes a key deterrent of inflation and promotes a higher standard of living.

For the year, productivity increased 1.6%, compared with a 1.0% increase in 2006.

Unit labor costs, a key measure of inflation, came in at 2.1% annualized rate for the quarter. Economists forecasted a number closer to 3.5%. For all of 2007, unit labor costs were up 3.1%, compared to 2.9% in 2006.

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