AP News

Ahead of the Bell: US Productivity

WASHINGTON (AP) — U.S. worker productivity likely shrank in the final three months of 2012, though at a slower pace than first estimated a month ago.

Economists forecast that productivity contracted at an annual rate of 1.6 percent in the October-December quarter, according to a survey by FactSet. That is better than the 2 percent rate of decline the government estimated last month, but much worse than the 3.2 percent growth rate in the July-September quarter.

Labor costs are expected to have risen at a 4 percent rate. They had dropped at a 1.9 percent rate in the previous quarter.

The Labor Department will release the report at 8:30 a.m. EST Thursday.

Productivity is the amount of output per hour of work. It is expected to have shrunk because economic activity barely expanded in the fourth quarter, while hours worked rose at a healthy clip.

The decline in productivity doesn't necessarily signal an immediate need for more hiring. That's because the weak performance of the U.S. economy was caused mainly by deep defense cuts and slower restocking by companies. Economists said those are likely to bounce back in the January-March quarter.

Still, the trend in productivity has been fairly weak. For all of 2012, productivity rose by just 1 percent, after an even smaller 0.7 percent rise in 2011.

Those gains were less than half the average growth in 2009 and 2010, shortly after many companies laid off workers to cut costs during the Great Recession. And it's below the long-run trend of 2.2 percent growth a year dating back to 1947.

Companies may ultimately need to hire more workers if they see only modest gains in productivity and more demand for their products.

Economists predict worker productivity will be weak through 2013. Higher productivity is typical during and after a recession, they note. Companies tend to shed workers in the face of falling demand and increase output from a smaller work force. Once the economy starts to grow, demand rises and companies eventually must add workers if they want to keep up.

The Federal Reserve closely monitors productivity and labor costs for any signs that inflation is affecting wages. Mild inflation has allowed the central bank to keep interest rates at record lows in an effort to boost economic growth and fight high unemployment.

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