U.S. business productivity rose at a slower-than-expected pace in the fourth quarter and at the lowest rate in a year and jobless claims rose unexpectedly last week, government reports showed on Thursday.
Non-farm business productivity, or worker output per hour, increased at a 2.7 percent annual rate in the final three months of the year after an upwardly revised 9.5 percent pace in the previous quarter, the Labor Department said.
The advance was the slowest since a 1.5 percent gain in the final quarter of 2002 and was lower than the 3.0 percent clip expected by analysts.
Unit labor costs fell 1.3 percent, a larger drop than the 0.8 percent decline expected by analysts, after a 5.6 percent tumble in the third quarter.
“Productivity growth has slowed down from the second and third quarter but it’s still managed to eke out a decline for unit labor costs and that’s what it comes down to,” said Elisabeth Denison, an economist with Dresdner Kleinwort Wasserstein.
“To have unit labor costs declining is a good sign for corporate profits.”
The dollar was little changed after the reports but Treasury bond prices rose.
Productivity gains have helped businesses keep production costs low -- a plus for profits -- but can be a double-edged sword as they can dampen hiring.
Economists say an improvement in the labor market is crucial for a sustained economic recovery.
Jobless claims rise
The Labor Department said separately that claims for state unemployment aid rose 17,000 to 356,000 in the week ended Jan. 31 from a revised 339,000 in the previous week.
A Labor Department official said inclement weather in the Midwest and Southeast had affected the numbers. The official said he could not quantify the impact but said that layoffs can increase during bad weather in industries like construction.
Analysts were expecting claims to dip to 340,000 from the originally reported 342,000 in the week ended Jan. 24.
“This was a rise on the weekly numbers that people didn’t expect, but I would note that the four-week moving average which gives you more of a sense of the trend, remained stable,” said Jay Bryson, global economist at Wachovia Securities.
The closely watched four-week moving average, considered a more reliable gauge of labor market health because it smooths volatility, was unchanged at 345,250, where it has been for three straight weeks.
The reports will get close scrutiny ahead of Friday’s release of the Labor’s January report on employment. Partly encouraged by recent falls in jobless claims, economists are forecasting non-farm payrolls to increase 150,000 and for the unemployment rate to stay at 5.7 percent.
“Strong productivity growth is indeed seen in a long-term perspective as negative for job growth but it’s short-term perspective we’re looking at (for) tomorrow’s numbers,” Denison said.
Productivity growth is expected to cool this year, allowing companies to hire more workers to meet rising demand. The economy grew at a 4.0 percent annual rate in the last three months of 2003.
Because of the costs of adding new employees, companies over the past two years have tended to improve technology and encourage existing workers to work harder instead of ramping up hiring.
But economists and the Federal Reserve expect that at some point, firms will not be able to make do with their existing workforce and will have to boost hiring. The Federal Reserve is likely to keep interest rates low until that happens, economists said.