Last updated: February 1, 2024 at 9:30 a.m. ET
First published: February 1, 2024 at 8:42 a.m. ET
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The numbers: Productivity at U.S. companies and their workers rose 2.7% in the fourth quarter from a year earlier, perhaps a sign that the economy could grow faster than expected despite easing inflation.
Productivity rose 3.3% in the fourth quarter, the government said, after…
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The numbers: Productivity at U.S. companies and their workers rose 2.7% in the fourth quarter from a year earlier, perhaps a sign that the economy could grow faster than expected despite easing inflation.
According to government data, productivity rose 3.3% in the fourth quarter, after rising sharply by 4.9% in the third quarter.
The recent improvement in productivity is a welcome sign after declining in 2022.
Higher productivity is the secret of an economy. When it increases, companies make higher profits and workers receive higher wages. Higher productivity also helps reduce inflation.
However, it is still too early to say whether the recent trend is sustainable. Productivity had been growing slowly for years before the pandemic and had shown little sign of improvement.
Some economists claim that new technologies such as artificial intelligence could increase productivity in the coming years.
The big picture: Productivity is difficult to measure and it often takes time for new trends to emerge. But the recent trend looks promising.
Important details: Production – or the amount of goods and services produced – rose at a strong annual rate of 3.7% in the fourth quarter.
Employee working hours increased slightly by 0.4%.
Productivity is determined by the difference between output and hours worked.
An increase in productivity occurs when workers produce more goods and services per hour—for example, boxes of widgets or the number of restaurant customers served—than the year before.
Unit labor costs rose a modest 0.5% in the quarter and 2.3% last year. This metric reflects how much each product costs to produce.
Unit labor costs rose 5.6% in 2022 as inflation weighed on the US economy.
Looking ahead: “As we have emphasized over the last eight months, the revival in productivity is encouraging for overall inflation and the economic outlook,” said EY Parthenon chief economist Gregory Daco.
“If companies can achieve strong productivity growth, they will be able to control costs and protect margins without sacrificing talent in an environment of still high wages and declining pricing power,” he said.
Market reaction: The Dow Jones Industrial Average DJIA and the S&P 500
SPX
are expected to open higher in Thursday trading.
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