U.S. business productivity rose more quickly in the fourth quarter than first thought, notching an unexpectedly brisk 2.1 percent annual rate, while the growth in labor costs was cut to a mild 1.3 percent pace, a government report showed on Thursday.

For 2004 as a whole, non-farm business productivity (search), or worker output per hour, grew 4.0 percent, the Labor Department said. While that remains a robust pace, it was a small downward revision from the 4.1 percent pace reported last month and marked the smallest increase since 2001.

Fourth-quarter productivity growth was first reported as a 0.8 percent rate, but Wall Street economists had expected an upward revision to 1.5 percent after estimates for economic growth in the final three months of 2004 were nudged up by the Commerce Department (search).

Productivity growth in the third quarter was revised lower, however, to a 1.3 percent pace from the earlier reported 1.8 percent clip.

The pickup in productivity growth slowed the growth in labor costs — a key gauge of inflation or profit pressures — to a 1.3 percent rate from the originally reported 2.3 percent clip. Economists had forecast labor costs would be revised to a 1.9 percent growth rate and will likely be reassured that inflation appears to be more contained than was suggested by the first estimate of the data last month.

The third-quarter measure of unit labor costs was revised sharply higher, however, to a 4.0 percent pace from an earlier reported 1.6 percent rate. The third-quarter pickup in costs was the largest gain since the first quarter of 2001.