Soaring Productivity Keeps Hiring Low in Late 2009

Washington, DC, March 4, 2010–U.S. businesses increased their productivity in the second half of the year more than previously reported, slashing hours by 1.3% even as they boosted their output by 2.5%, the Labor Department reported Thursday.

The surge in productivity explains how the economy could grow at a 5.9% pace in the fourth quarter without creating any jobs. And the report shows that slack in the labor market is a powerful deflationary force in the economy today.

Unit labor costs – a key inflationary gauge – fell sharply in the third and fourth quarters, the Bureau of Labor Statistics said. For all of 2009, unit labor costs fell 1.7%, the most since the records were first kept in 1948. Read the full report on the BLS website.

In the fourth quarter, productivity increased at a 6.9% annual rate, revised up from the 6.2% reported a month ago.

Economists were looking for a revision to 6.6%.

In the third quarter, productivity was revised higher to a 7.8% annual rate from 7.2% previously, the most in six years.

For all of 2009, productivity increased 3.8%, the most in seven years.

Unit labor costs fell a revised 5.9% in the fourth quarter and a revised 7.6% in the third quarter, the sharpest drop since 1949, the government said.