Productivity Declines Revised Slightly

The efficiency of American workers actually declined in the final three months of 2005, the first time that has happened in more than four years, while wage pressures accelerated.

Americans' productivity, a key determinant of rising living standards, dipped at an annual rate of 0.5 percent in the October-December quarter, while wages rose at a 3.3 percent pace, the fastest gain in a year, the Labor Department reported Tuesday. Both figures were slightly revised from original estimates a month ago which had productivity falling at a 0.6 percent rate and wage costs rising at a 3.5 percent rate in the fourth quarter.

The 0.5 percent drop in productivity, the amount of output per hour of work, was the first quarterly decline since a 0.6 percent fall in the first quarter of 2001, when the country slipped into a recession. Analysts said the latest decline was not as ominous and mainly reflected a temporary slowdown in overall economic growth caused by the hurricanes and surging energy prices.

The economy is expected to have bounced back sharply in the current January-March quarter, which will translate into improving productivity.

Some economists believe that the sluggish 1.6 percent growth rate for the overall economy in the October-December quarter will be followed by growth, perhaps above 5 percent, in the first three months of this year.

The slight upward revision in the productivity number reflected the fact that overall economic growth was revised up to the 1.6 percent rate from an initial estimate of a lower 1.1 percent growth rate.

For the whole year, productivity increased by 2.9 percent in 2005 following an increase of 3.4 percent in 2004. It was the slowest annual increase since a 2.4 percent rise in 2001.