In the last three months of 2023, the U.S. saw a significant rise in labor productivity.
This boost reflects a year filled with efficiency improvements, propelling economic expansion, and easing inflationary pressures.
Workers in non-farm sectors achieved a 3.2% annualized increase in productivity.
This came after a revised 4.9% rise in the earlier quarter, data from the Bureau of Labor Statistics shows.
Meanwhile, the cost for each unit of output edged up by 0.5%, a shift from a 1.1% decrease in the third quarter.
This period’s 2.7% productivity hike exceeded the 25-year average.
Such a trend signals optimism for Federal Reserve leaders, who are keen on further reducing inflation.
2022’s significant drop in productivity was more than made up for by this surge.
Gregory Daco, EY’s Chief Economist, commented, “The productivity leap bodes well for both inflation control and broader economic health.
Companies maintaining strong productivity can manage costs effectively, even amid high wages and fading pricing leverage.”
For many firms, labor is the biggest cost. Hence, the pursuit of new technology and better equipment is crucial.
This strategy lessens the inflationary effect of rising wages. The last quarter saw a 2.3% year-over-year increase in unit labor costs.
The productivity and labor cost report also revealed a 3.7% quarter-on-quarter output rise.
However, the growth in hours worked decelerated to 0.4%. Hourly pay growth remained steady at 3.7%.
Economic Insights and Surprises
Bloomberg Economics pointed out, “The Federal Reserve will likely appreciate the recent productivity and labor cost trends.
They align with the Fed’s 2% inflation goal. Last quarter’s productivity benefited from both higher output and working hours.” – Estelle Ou, economist
The economy’s growth stayed robust in the quarter.
The GDP rose at a 3.3% annualized rate, fueled by an unexpected surge in consumer spending during the holidays.
Other data released showed a surprising increase in new unemployment claims to a two-month peak, with ongoing claims rising as well.