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Economic Report: U.S. fourth-quarter labor productivity rises 6.6%

The numbers: U.S. productivity rose at a 6.6% annual clip in the fourth quarter, the Labor Department said Thursday. 

Economists surveyed by MarketWatch had projected a 4.4% rise. Productivity had fallen a revised 5% in the prior three months.

U.S. productivity rose 1.9% in 2021, down from a 2.4% pace in the prior calendar year.

Unit-labor costs, a key measure of wages,  rose at a 0.3% rate in the fourth quarter, down from a revised 9.3% surge in the third quarter. Unit labor costs rose 3.2% year-over-year.

Key details: The gain in productivity came as output rose at a 9.2% rate in the fourth quarter while hours worked rose 2.4%.

Big picture: Economists say that it has been hard to get a grip on underlying trends in productivity during the pandemic as the data has been extraordinarily volatile. There is a sense that workers and business have become more productive as they switched to working from home.

Looking forward: “Stepping back from the noise, we think the underlying trend is now about 2%, rather better than the 1.2% average in the cycle following the GFC, but we expect further gains over the next couple years on the back of stronger business capex. If we’re right, unit labor costs growth will be contained even with wage growth as high as 4.5-to-5%, so inflation will return to target once the Covid distortions fade,” said Ian Shepherdson, chief economist at Pantheon Economics.

Market reaction: Stocks DJIA, -0.98% SPX, -1.58% were set to open lower on Thursday. The yield on the 10-year Treasury note TMUBMUSD10Y, 1.842% moved up close to 1.8%.

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