Productivity Surges, Unit Labor Costs Decelerate

- Preliminary 4Q Non-farm Productivity rose 3.0% versus estimates of a 2.0% gain and a -.1% decline in 3Q.
- Preliminary 4Q Unit Labor Costs rose 1.7% versus estimates of a 2.1% gain and an upwardly revised 3.2% increase in 3Q.

BOTTOM LINE: US worker productivity grew at the fastest rate in almost a year last quarter and labor costs rose at a slower pace, suggesting less of an inflation threat. Productivity is now above long-term average levels, while unit labor costs are rising around average rates. Output rose at a 4.2% rate in 4Q versus a 1.9% increase during 3Q. Compensation for each hour worked rose an annual rate of 4.8% in the fourth quarter versus a 3.1% gain in 3Q. Productivity at non-financial corporations, a gauge closely monitored by the Fed, rose at a 5.7% rate in the third quarter versus a 4.3% decline the prior three months. Non-financial productivity has averaged a 4.2% gain over the last 3 quarters, substantially above the 20-year average of 2.4%. I continue to believe the job market will remain healthy without generating substantial unit labor cost increases over the intermediate-term.