Today brought news of weaker than expected productivity growth in the 4th quarter, to match the weaker than expected real GDP growth at last year's close. From Reuters:
U.S. business productivity rose at just a 0.8 percent annual rate in the fourth quarter, an unexpectedly slim advance that was the smallest in nearly four years, according to a government report on Thursday that could fan inflation fears.
For the year as a whole, non-farm business productivity, or worker output per hour, grew 4.1 percent, the Labor Department said. While the annual growth rate is healthy by historic standards, it nonetheless marked the smallest increase since 2001.
Despite the modest pace of total labor compensation growth, the productivity slowdown was enough to put some pressure on businesses' bottom lines.
The slowdown in productivity caused unit labor costs, a key gauge of inflation or profit pressures, to jump. They rose at a 2.3 percent rate, the biggest increase since a matching gain in the second quarter of 2002 and a step-up from the third quarter's downwardly revised 1.6 percent pace.
But don't despair. As was the case here, maybe there is some misunderstanding. From Bloomberg:
While the trend of smaller productivity increases is probably established, the fourth-quarter figure may be understated, according to economists such as Ian Shepherdson. A smaller trade deficit and stronger construction spending than initially projected suggest gross domestic product will be revised up from the 3.1 percent annual pace the government reported last week.
"The good news is that the productivity numbers will almost certainly be revised higher, thanks to the pile of evidence already pointing to an upward revision to GDP,'' said Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
On the other had, don't get to excited about that possibility.
"The bad news is that no plausible revision can change the big picture of slowing growth in productivity and a gradual upturn in unit labor costs.''