- Preliminary 4Q Non-farm Productivity rose 1.8% versus estimates of a .5% gain and a 6.0% increase in 3Q.
- Preliminary 4Q Unit Labor Costs rose 2.1% versus estimates of a 3.5% gain and a -1.9% decline in 3Q.
BOTTOM LINE: Worker productivity in the US grew more than forecast in the fourth quarter as companies sought to contain unit labor costs, a sign inflation pressures may recede, Bloomberg reported. Labor costs account for about two-thirds of the cost of producing a good or service. This gives the Fed more flexibility and Richmond Fed President Lacker said today that further rate cuts may be warranted. Productivity rose at a 1.6% pace for all of 2007, up from a 1% pace in 2006. Productivity at non-financial corporations, a gauge released with a one-quarter lag and closely watched by former Fed Chairman Greenspan, rose at a 3.7% rate in the third quarter versus a 2.1% gain in the second quarter. Given the substantial deceleration in 4Q growth, the stronger-than-expected rise in productivity is a big positive. As well, decelerating unit labor costs, the main component of inflation, give the Fed significant leeway to cut rates further. I continue to believe unit labor costs will rise at below average rates over the intermediate-term. Moreover, I suspect productivity, which has picked up meaningfully over the last three quarters, will continue trending at above-average rates over the intermediate-term.
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