WASHINGTON - U.S. nonfarm productivity increased 2.6% at an annual rate in the fourth quarter, the largest gain in three quarters, as businesses' labor costs declined, the Labor Department reported Thursday.
Unit labor costs, a ratio of hourly compensation to labor productivity, dropped 0.6% in the fourth quarter, the second straight quarterly decline. Hourly compensation increased 1.9% for the three months ending Dec. 31 and output jumped 4.5%. Increases in hourly compensation tends to increase businesses' labor costs while an increase in output tends to reduce labor costs.
For all of 2010, productivity increased 3.6%, the largest annual gain since 2003. Productivity increased 3.5% in 2009.
Business labor costs declined 1.5% in 2010 following a 1.6% decline in 2009.
Economists expected productivity would increase 2.0% in the fourth quarter, according to the median estimate from Thomson Reuters.
Productivity increased 2.4% in the third quarter, revised slightly higher from a 2.3% gain reported in December.
Productivity has increased for the last two years as businesses are squeezing more output from their workers while wage increases have been stagnant.
Productivity dropped 1.8% in the second quarter of 2010 and increased 3.9% in the first quarter.
