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U.S. productivity slows in fourth quarter

Reuters

WASHINGTON (Reuters) - U.S. worker productivity slowed in the fourth quarter, leading to the smallest annual increase in five years.

The Labor Department said on Thursday that nonfarm productivity, which measures hourly output per worker, rose at a 1.3 percent annual rate. Productivity in the third quarter was revised up to show a 3.5 percent pace of increase instead of the previously reported 3.1 percent rise.

Economists had forecast productivity increasing at a 1.0 percent rate in the fourth quarter. Productivity rose 0.2 percent in 2016, the smallest gain since 2011, after increasing 0.9 percent in 2015.

The slowdown in productivity was flagged in last week's gross domestic product report, which showed output increasing at a 1.9 percent pace in the fourth quarter, decelerating from the third quarter's brisk 3.5 percent pace.

Weak productivity has boosted employment growth as companies hire more workers to maintain output, which could help explain the divergence between payroll gains and economic growth. The economy grew 1.6 percent in 2016, while job growth averaged 180,000 per month.

Productivity has increased at an annual rate of less than 1.0 percent in each of the last six years. Productivity growth averaged 1.1 percent from 2007 to 2016, well below the long-term rate of 2.1 percent from 1947 to 2016.

Soft productivity, which has significantly lowered the economy's long-run potential, could undermine U.S. living standards. Some economists believe productivity is not being measured correctly, especially on the information technology side.

In the fourth quarter, output per worker increased at a 2.2 percent rate. Unit labor costs, the price of labor per single unit of output, increased at a 1.7 percent pace. They rose at a 0.2 percent rate in the prior period.

Unit labor costs rose 2.6 percent in 2016 after increasing 2.0 percent in 2015. Hourly compensation per hour rose at a 3.0 percent rate in the fourth quarter. While that was slower than the third quarter's 3.7 percent rate of increase, it continued to suggest that wage growth is picking up.

Hourly compensation rose 2.8 percent in 2016 after advancing 2.9 percent in 2015.

(This version of the story corrects revision in second paragraph to third quarter from fourth quarter)

(Reporting by Lucia Mutikani; Editing by Paul Simao)