US productivity growth eased to 1.2% in fourth quarter

U.S. productivity growth slowed in the fourth quarter, rising at a 1.2% annual rate after a 2.3% gain in the prior three-month period, the Labor Department said Thursday. Unit labor costs, described in the report as a key measure of wages, accelerated to a 3% increase from 0.5% in the third quarter.

The productivity figure came in below the 1.4% increase expected by economists surveyed by The Wall Street Journal. The report gives policymakers and investors a mixed reading on the economy’s supply side: output per worker continued to improve, but at a slower pace, while labor-cost growth picked up.

Productivity data are reported at annualized rates, allowing the pace of a single quarter to be compared with a full-year rate. A slower productivity increase can matter for inflation and margins because weaker output gains give companies less room to absorb higher compensation without raising prices or accepting lower profitability.

For 2024 as a whole, U.S. productivity increased at a 2.3% rate, according to the Labor Department. That was higher than the 1.6% rate recorded in 2023.

Unit labor costs measure the labor expense associated with producing output. The fourth-quarter rise marked a sharp acceleration from the previous quarter’s 0.5% increase, according to the Labor Department’s figures.

The combination of a slower quarterly productivity gain and faster labor-cost growth will be read alongside other incoming data on wages, inflation and output. The Labor Department’s release did not include market commentary, and the figures represent backward-looking measures for the final quarter of the year.

This story draws on original reporting from MarketWatch.