Top Stories > Productivity, labor costs climb in 2006 (AP)

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AP - Productivity grew at a healthy 3 percent annual rate in the final quarter, although this critical measure of U.S. economic vitality for all of 2006 expanded at the slowest pace in nine years.

 

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[Cody]

The Labor Department reported Wednesday that productivity, the amount of output per hour of work, rose at a 3 percent annual rate for October through December. That compares with a 0.1 percent decline in three previous months.

 

For the entire year, productivity edged up by 2.1 percent, the weakest performance since a 1.6 percent rise in 1997.

 

Productivity is the vital element needed to boost living standards. It allows businesses to pay workers more, because of their increased output, without having to raise the cost of their products.

 

A gauge of wage pressures tied to productivity jumped by 3.2 percent last year, the biggest annual increase in six years. But over the final three months of 2006, the cost of labor per unit of output did improve. It slowed to an increase of 1.7 percent, compared with a 3.2 percent rise from July through September.

 

Rising wages are good for workers. The concern is that if wage increases outstrip gains in productivity, businesses will start raising prices, setting off a classic wage-price spiral.

 

The Federal Reserve is keeping close tabs on the performance of productivity and unit labor costs. Policymakers are watching for signs that slowing productivity and rising wage pressures are having an adverse impact on inflation. The hope is that businesses will meet workers' wage demands by trimming their record profits rather than making goods more expensive.

 

The rebound in productivity in the fourth quarter was double what had been expected. Analysts said that performance and the slowdown in unit labor costs should ease inflation worries at the Fed.

 

 

As I see it, the cost of things needs to go down. I think the only real wages which kept up with inflation were the CEOs and Congress....