US productivity increases by the most in more than a year

Bloomberg

US productivity surged last quarter by the most in more than a year, reflecting a sharp acceleration in economic output, while labour costs growth cooled.
Fourth-quarter nonfarm business employee output per hour increased at a 6.6% annual rate from the previous three months, the largest advance since the second quarter of 2020, according to Labour Department figures. In the third quarter, productivity slumped 5%, the sharpest drop since 1981. Productivity rates can be extremely volatile. On a year-over-year basis, output per hour rise 2%.
“Buoyant productivity acted as a buffer against rising compensation growth” in the fourth quarter, Oxford Economics’ Lydia Boussour and Kathy Bostjancic said in a note. “While this is encouraging, we expect rising labour costs will put downward pressure on companies’ profit margins this year.”
With the help of widespread vaccinations and another massive wave of government stimulus, the US economy grew last year at the strongest pace since the 1980s despite persistent supply constraints. At the same time, the labour market rebounded rapidly from the unprecedented job losses seen in 2020, dramatically driving up the number of hours worked across the economy.
In fourth quarter, economic output accelerated at a 9.2% pace, according to the report, while hours worked rose 2.4%.
A host of factors — like early retirements, Covid-19 fears and child care challenges — shrank the pool of available workers, leaving businesses scrambling to fill a record number of vacancies. Employers bid up wages and offered a variety of other incentives to attract and retain workers. In 2021, employment costs rise by the most in two decades.
Unit labour costs, or hourly compensation adjusted for productivity, rises at a 0.3% rate in the fourth quarter following a 9.3% gain in the previous three months. Compared with the fourth quarter of 2020, labour costs rise 3.1%.
The recent run-up in labour costs has heightened concerns about the persistence of high inflation, which is already the fastest in nearly 40 years. When faced with heightened costs, businesses often look to improve worker productivity by investing in equipment, automation and other technological
improvements. As a result, rising productivity can help offset the inflationary impact of wage increases.
Despite the rapid increases in wages, though, they’re still not keeping up with inflation. Real average hourly compensation falls an annualised 1.2% from the prior quarter after dropping at a 2.6% pace.
Meanwhile, applications for US state unemployment insurance fell for a second week, partially unwinding a recent spike in claims as the omicron wave recedes. Initial unemployment claims decreased by 23,000 to 238,000, Labour Department data showed. The median estimate called for 245,000 applications in a Bloomberg survey of economists.
Continuing claims for state benefits fell to 1.63 million in the week ended January 22.
Applications continued to decline after a surge in recent weeks amid an uptick in Covid-19 cases across the country. Claims largely been falling in the past year, and layoffs are at a record low as companies are desperate to retain and attract talent amid ongoing labour shortages.
The claims data comes ahead of the government’s monthly employment report, which is forecast to show the US added 150,000 jobs in January. A separate report Wednesday showed that payrolls at US companies fell by 301,000 last month, the most since April 2020, according to ADP Research Institute.
On an unadjusted basis, claims decreased to 257,002 last week. Ohio, Kentucky and Illinois were states registering the biggest decreases in unadjusted claims. Pennsylvania, Michigan and Indiana posted the largest increases in applications.