Worker productivity growth slowed in 4th quarter

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This Jan. 25, 2012 photo, shows bins of completed locks at the Master Lock company in Milwaukee, Wis. Workers were more efficient in the final three months of last year, but their gains in productivity were slower than during previous three months. Slower productivity growth can be a good sign for hiring if economic growth picks up. (AP Photo/Jeffrey Phelps)

Updated: February 2, 2012 9:24AM

WASHINGTON — American workers were more efficient in the final three months of last year, although their gains in productivity slowed from the previous quarter. Slower productivity growth can be a good sign for hiring if economic growth picks up.

The Labor Department said Thursday that worker productivity rose at a 0.7 percent annual rate in the October-December quarter. That’s below a downwardly revised 1.9 percent in the previous quarter.

Labor costs rose 1.2 percent in the final three months of last year, as wages and salaries grew at a faster pace than productivity. Still, inflation-adjusted wages fell 1.2 percent in all of 2011, the steepest annual drop since 1989.

Productivity is the amount of output per hour of work. A slowdown in productivity is bad for corporate profits. But it can be good for the economy if it signals companies aren’t able to squeeze more work out of their existing staffs. When that happens, it often means they must hire more workers if they want to grow.

Productivity jumped after the recession, largely because companies boosted output without hiring much.

In the first six months of 2011, productivity fell largely because consumers cut back on spending in the face of higher food and gas prices. That slowed overall economic growth.

Growth accelerated in the October-December quarter to a 2.8 percent annual rate. That spurred more hiring. Companies added an average of 137,000 jobs per month in the final three months of last year. That was below the third quarter’s average but much higher than the 97,000 added in the April-June quarter.

The average work week ticked up in the final three months of last year, to 34.4 hours.

On Friday, the government reports on January hiring and unemployment. Economists expect that companies added 155,000 net jobs, while the unemployment rate stayed at 8.5 percent unemployment for a second straight month.

Companies found ways to produce more goods and services with fewer workers during the recession. Greater productivity helped them boost profits. But it also allowed them to hold back on hiring after companies slashed millions of jobs during the downturn.

That can make higher productivity can be painful for workers in the short run. But productivity is important for raising living standards.

Increases in productivity allow companies to pay workers more without being forced to boost the prices of their products, which can cause inflation