Worker productivity falls 3%

U.S. reports factory orders down, jobless-aid claims up

WASHINGTON -- U.S. productivity fell sharply in the final three months of 2015, closing out a fifth straight year of weak gains in worker efficiency.

The Labor Department said Thursday that productivity -- the amount of output per hour of work -- fell at an annual rate of 3 percent in the fourth quarter. It was the biggest quarterly decline in nearly two years.

"Productivity is essentially stagnant," said Brian Jones, senior U.S. economist at Societe Generale in New York. He said that means "you're going to have to continue to add workers if you're going to boost output."

The productivity report was one of three economic reports released Thursday. The Commerce Department reported that U.S. factory orders fell in December, and the Labor Department said weekly applications for unemployment benefits rose by 8,000.

Productivity last year edged up a slight 0.6 percent after a tiny 0.7 percent gain in 2014. It has been weak since 2011, a troubling development given that productivity is a key ingredient needed for raising living standards. Rising productivity enables businesses to pay employees higher wages without having to raise the cost of the products and services they sell.

Labor costs rose 4.5 percent in the fourth quarter but were up a more modest 2.4 percent for the year.

Economists said the new productivity report provides fresh evidence of a worrisome trend.

"The biggest medium-term threat to the living standards of Americans is the chronic lack of productivity growth," said Paul Ashworth, chief U.S. economist at Capital Economics.

Inflation is muted at the moment, given the plunge in energy prices and the strength of the dollar. But he said those temporary factors will fade in coming months, which is likely to lead to higher inflation because of rising labor costs.

"Unit labor costs are ... mounting because firms are having to employ so much more labor to expand production," he said.

The Federal Reserve keeps watch on both productivity and labor costs as it deliberates how quickly it should raise interest rates to keep inflation under control. The Fed raised a key rate by a quarter-point in December, the first increase in nearly a decade. But weaker economic data and turbulent financial markets may reduce the number of rate increases this year from what had been an expected four down to perhaps just two.

Last week, the government reported that total output, as measured by the gross domestic product, slowed to a meager 0.7 percent growth rate in the fourth quarter. GDP had expanded at a faster 2 percent rate in the July-September period.

Productivity recently has been growing well below the 2.1 percent average gains seen over the past 67 years. It had accelerated for a decade starting in 1995. Those gains were attributed to improvements in computer software and the introduction of technology that helped workers do their jobs more efficiently.

Some economists believe the recent slowdown in productivity is partly the result of a drop in business investment in new equipment. They expect it to accelerate once business investment spending begins to increase at a faster clip. But other economists are worried that the country may be stuck in a prolonged period of weak productivity growth.

Orders to U.S. factories fell sharply in December, closing out a year in which demand for American manufactured goods retreated for the first time in six years.

Factory orders dropped 2.9 percent in December, the fourth decline in the past five months, the Commerce Department said. Orders were down 6.6 percent for the full year, marking the first annual fall since 2009, a year when the country was struggling to emerge from a recession.

The 2015 decline highlights the problems American manufacturers are facing from spreading global weakness and the rising strength of the dollar.

The big December decline was led by a drop in demand for commercial aircraft, a volatile category. But orders in a key category that tracks business investment also fell sharply.

Applications for unemployment benefits rose 8,000 last week to a seasonally adjusted 285,000, the Labor Department said Thursday. The four-week average, a less volatile measure, increased slightly to 284,750. The number of people collecting aid has dropped 5.5 percent in the past year to 2.3 million.

Unemployment claims at these levels suggest that employers are still eager to hire. Applications for unemployment benefits are a proxy for layoffs. The number of people seeking benefits has stayed below a threshold of 300,000 for the past 11 months, which suggests that employers are holding on to workers and looking to hire on the expectation of continued economic growth.

Orders for durable goods, items intended to last at least three years such as cars and home appliances, dropped 5 percent in December. The figure was revised slightly from an advance report last week that pegged the drop at 5.1 percent.

Information for this article was contributed by Martin Crutsinger and Josh Boak of The Associated Press and by Victoria Stilwell of Bloomberg News.

A Section on 02/05/2016

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