US productivity posted its biggest gain since 1950 last year as computers and improved technology helped companies generate more goods with fewer employees. The efficiency of American workers fell in the fourth quarter amid a cooling economy that curbed demand.
The measure of how much an employee generates for each hour worked rose 4.7 percent last year, almost twice the average gain of 2.5 percent from 1996 through 2000. For the quarter, productivity fell at a 0.2 percent annual rate, the first drop since 2000's second quarter, when the economy was in recession.
"This is an extraordinary thing we are in the middle of," said James Glassman, a senior economist at J.P. Morgan Securities Inc in New York. "We care more about the trend over several years rather than the swings from quarter to quarter."
Last year's increase suggests the economy needs to grow faster before hiring will accelerate. A separate report today showed 3.353 million people are collecting state unemployment benefits, up 58,000 from the week ended Jan. 18.
Federal Reserve Chairman Alan Greenspan has pegged the central bank's monetary policy partly to the rise in productivity, which helps keep prices down.
Last year's efficiency gains contributed to a 1.8 percent decline in labor costs last year, the biggest decrease on record.
In the short term, the Fed says rising worker efficiency is helping shore up company profits even as sales slow. Over a longer period, the Fed believes higher productivity allows the economy to grow faster than thought possible without triggering running into labor market constraints that might boost inflation.
The fourth-quarter slowdown in productivity followed a 5.5 percent increase in the third quarter, when the economy was growing more than four times faster than at the end of the year.
Economists had expected a 0.7 percent increase the quarter, based on the median of 63 forecasts in a Bloomberg News survey.
Economic growth in the final three months last year slowed to a 0.7 percent annual rate from 4 percent in the previous three months.
"Businesses didn't seem to cut back as quickly, and what that may be telling us is that firms are extraordinarily lean and can't cut back," said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania.
Productivity probably will resume its climb when the economy accelerates.
"As this economy starts coming up we're going to see a productivity engine a lot of people weren't expecting," Charles Holliday, chief executive officer of DuPont Co, said in a recent interview.
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