U.S. productivity showed no gain in the fourth quarter, the poorest performance since an outright decline in the first quarter of 2016. It was further evidence of the struggles the country is facing in boosting worker efficiency.

The flat reading the Labor Department reported Wednesday was a slight improvement over an initial estimate a month ago that productivity had actually fallen at a seasonally adjusted annual rate of 0.1% last quarter. Labor costs rose at an annual rate of 2.5% in the fourth quarter, a modest gain that followed a 1% increase in the third quarter.

For the year, productivity rose 1.2%, a weak performance but a slight improvement from no gain at all in 2016. Boosting productivity is seen as the country’s biggest economic challenge.

The zero growth in productivity in 2016 was the poorest performance in 35 years, since productivity fell by 1% in 1982.

Why productivity matters

Productivity, the amount of output per hour of work, is the key factor governing rising living standards. If productivity improves, it allows companies to pay their workers more without having to boost the cost of their products, a move that can increase inflation.

Without improvements in productivity, the Trump administration will have difficulty achieving its goal of doubling the rate of economic growth to 3% or better. An economy’s potential for growth is determined by growth in the labour force, which is determined largely by birth rates and immigration, as well as the growth in productivity.

The small revision to the fourth quarter figure reflected the fact that the government last week made a slight revision to overall output, as measured by the gross domestic product, showing the GDP grew at a 2.5% annual rate rather than the 2.6% gain initially estimated.

Also read:

Morneau says Canada can hold out for a better NAFTA deal

Consumer spending to boost China’s growth

How a U.S. trade war could affect markets

Originally published on
Add a comment

Have your say on this topic! Comments are moderated and may be edited or removed by
site admin as per our Comment Policy. Thanks!