The Labor Department said on Thursday nonfarm productivity, which measures hourly output per worker, dropped at a 4.8% annualized rate last quarter. That was the deepest pace of contraction since the second quarter of 1981.
Data for the third quarter was revised higher to show productivity growing at a 5.1% pace instead of the previously reported 4.6% rate. Productivity rose 2.6% in 2020 compared to 1.7% in 2019.
Economists polled by Reuters had forecast productivity declining at a 2.8% rate in the fourth quarter. Compared to the fourth quarter of 2019, productivity increased at a 2.5% rate.
Hours worked rose at a 10.7% rate last quarter. That followed a 37.1% pace in the third quarter.
Unit labor costs – the price of labor per single unit of output – rebounded at a 6.8% rate after plunging at a 7.0% rate in the third quarter. Unit labor costs increased at a 5.2% rate from a year ago. They rose 4.3% in 2020 after gaining 1.9% in 2019.
Though labor costs have been distorted by the pandemic’s disproportionate impact on lower-wage industries, the rebound supports expectations of higher inflation this year.
Hourly compensation increased at a 1.7% rate last quarter. That followed a 2.2% pace of decline in the July-September quarter. Compensation increased at a 7.8% rate compared to the fourth quarter of 2019. It grew 7.0% in 2020 after rising 3.6% in 2019.