Worker output rises in 4th quarter

Worker productivity in the U.S. grew more than forecast in the fourth quarter as companies held down labor costs, a sign that inflation pressures might recede.

Productivity rose at an annualized 1.8% rate slowing from a 6% pace in the third quarter, the Labor Department said Wednesday. The median forecast in a Bloomberg News survey of analysts was for a 0.5% gain.

The report also showed that businesses cut employees’ hours at the fastest pace in almost five years in an effort to control expenses as the economy hovered on the verge of the first recession since 2001.

The figures may ease Federal Reserve concerns that its recent interest rate cuts, the most aggressive since 1990, will spur inflation. The Fed cut its key rate by a half-point last week to 3%, just eight days after an emergency reduction of three-quarters of a point.

Richmond Fed President Jeffrey Lacker said at Marshall University in Huntington, W.Va., on Wednesday that further rate cuts might be warranted.

The productivity report “gives the Fed more flexibility to respond to weakness in growth,” said James O’Sullivan, a senior economist at UBS Securities in Stamford, Conn. “It certainly looks like there is more easing to come.”

Labor costs rose less than forecast, the figures showed. Unit labor costs, which are adjusted for gains in efficiency, rose 2.1% in the fourth quarter after dropping 1.9% in the previous three months. Economists had projected a 3.5% increase. Compensation for each hour worked increased at an annual rate of 3.9%, compared with 4% the previous quarter.

Hours worked fell at a 1.5% pace in the fourth quarter, the biggest since the first three months of 2003.

The drop in employee hours is a “negative omen for the labor market,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York, wrote in a note to clients. “The productivity data further justify the Fed’s bias toward downside risks to growth.”