Productivity jumped 3.2 percent in the fourth quarter as output dropped 5.5 percent in the nonfarm sector. Real compensation per hour moved significantly higher - up 15.6 percent - as compensation per hour was higher and consumer prices fell sharply. This created the largest gain since 1950.

Productivity Soared

  • Productivity was up 3.2 percent in the fourth quarter, driven higher by an outsized decline in hours worked (down 8.4 percent) that more than offset the decline in output (down 5.5 percent) during the quarter.
  • Hours worked dropped sharply as businesses struggled to cut production with weaker demand and higher inventories.

Unit Labor Costs

  • Unit labor costs were up a benign 1.8 percent. Increases in compensation per hour (up 5.0 percent) were largely offset by the higher-than-expected gain in productivity.
  • While price declines helped real compensation jump in Q4, price declines will be unable to continue to support earnings as wages trend lower in a weak labor market this year.