AP News

Ahead of the Bell: US productivity

WASHINGTON (AP) — The Commerce Department estimates U.S. worker productivity and labor costs for the October-December quarter. The report will be released at 8:30 a.m. EST Thursday.

PRODUCTIVITY SLOWER: The forecast is that productivity slowed to a 2.5 percent growth rate in the fourth quarter, according to a survey by FactSet. The economists were looking for labor costs to decline at a 0.5 percent rate.

WORKER EFFICIENCY: Productivity measures output per hour of work. Greater productivity raises living standards because it enable companies to pay their workers more without having to raise prices which could boost inflation.

In the third quarter, productivity increased at an annual rate of 3 percent while labor costs were falling at a 1.4 percent rate.

The Federal Reserve monitors productivity and labor costs for any signs that inflation could pick up. Mild inflation has allowed the Fed to keep short-term interest rates at record lows and purchase bonds to try to keep long-term rates down.

The Fed in December and again in January announced that it was reducing its monthly bond purchases, taking them from $85 billion per month down to $65 billion.

But at the same time, the Fed strengthened its commitment to keep short-term rates for an extended period, saying it expected to keep short-term rates low "well past" the time that unemployment dips below 6.5 percent. The unemployment rate is current 6.7 percent.

In records going back to 1947, productivity has been growing by about 2 percent per year.

In 2010 and 2011, productivity increased at annual rates above 3 percent. That reflected the fact that millions of Americans were laid off as companies struggled to cope with a deep downturn. While output was down as well, the number of workers fell more, that productivity increased.

After that initial jump, productivity has slowed in recent years.

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