Productivity, the amount of output per hour of work, increased at an annual rate of 3.5% in the October-December quarter, a big improvement over the 1.1% growth rate in the previous quarter, the Labor Department reported Wednesday.
It was the largest increase in more than a year, as businesses cut worker hours and eliminated jobs to cope with the ailing economy. The cutbacks caused the total number of hours worked to drop at a faster pace than output, thus creating a rise in productivity.
Workers' hours fell at a 3.7% rate and output declined at a 0.4% rate in the fourth quarter. Companies have slashed thousands of jobs.
For all of 2001, productivity rose by 1.8%, the weakest showing since 1995, and a deceleration from the 3.3% increase posted in 2000.
The economy slipped into recession in March, but there have been signs recently of an economic rebound, the Associated Press reported. The rise in productivity in the fourth quarter helped to moderate unit labor costs, a gauge of inflation.
Unit labor costs actually fell at an annual rate of 1.1%, after rising at a rate of 2.6% in the third quarter. But for all of 2001, unit labor costs rose by 3.9%, the biggest gain since 1990. In 2000, unit labor costs increased by 3.1%.
Gains in productivity allow companies to pay workers more without raising prices, which would eat up those wage gains, and permit the economy to grow faster without triggering inflation. If productivity falters, however, pressures for higher wages could force companies to raise prices, thus worsening inflation.
The 3.5% productivity growth rate in the fourth quarter marked the biggest increase since the second quarter of 2000 when productivity rose at a 6.7% rate.
From 1973 to 1995, productivity averaged lackluster gains of just above 1% per year. But since 1995, increases have more than doubled.
