Productivity revised up to 0.9%, but compensation jumps 2.8%
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — U.S. businesses were slightly more productive in the fourth quarter than previously believed, but they also faced sharply higher labor costs, according to revised government data issued Wednesday.
The spike in hourly wages — perhaps reflecting more overtime — could be a sign that businesses need to add workers to keep up with rising demand for goods and services.
Companies usually boost overtime, a more expensive form of labor, before adding staff, and that tends to lower productivity. They eventually have to hire if demand continues to pick up, however.
Productivity climbed 0.9% in the final three months of 2011, up from an initial estimate of 0.7%, the Labor Department said. That matched the forecast of economists surveyed by MarketWatch.
The amount of goods and services produced, known as real output, grew at an annual rate of 3.7%, slightly higher than the original estimate of 3.6%.
Hours worked rose 2.7%, down slightly from a 2.9% rate initially estimated.
Yet hourly compensation, adjusted for inflation, shot up 2.8% in the fourth quarter, much higher than the initial reading of 1.9%. It was the fastest increase in nine months.
The benefit to workers, however, was wiped out by higher inflation in 2011. Real hourly compensation actually fell 0.7% last year, the biggest drop since 1989.
Unit-labor costs, meanwhile, rose 2.8% in the fourth quarter instead of at the 1.2% growth rate previously estimated. Economists had been expecting that unit-labor costs would be revised, but only up a smaller 1.9%.
Unit-labor costs reflect how much it costs a business to produce one unit of output, such as a ton of coal or a crate of toys. In 2011, unit-labor costs rose by 2.0% overall, marking the biggest increase since 2008.
For all of 2011, productivity rose at a revised 0.4% annual rate instead of 0.7%. That was much smaller than the 4.1% increase in 2010 and a 2.3% gain in 2009 — and marking the smallest annual increase since 1995.
Higher productivity is regarded as the key to a rising standard of living over time because it tends to lead to greater pay for workers and larger profits for companies.
In the short run, however, many factors affect productivity and make the data hard to assess.
Companies might eliminate jobs but keep output of goods and services at the same level, leading to higher productivity. Conversely, they might boost hiring in anticipation of strong future sales, causing productivity to plummet temporarily.
Productivity data are also revised several times, with the changes sometimes large. In the third quarter, for example, productivity was initially reported at 3.1%, but it was later revised down to 2.3% and then to 1.9%, and now to 1.8%.
