U.S. Productivity Slows in Fourth Quarter as Unit Labor Costs Rise

U.S. productivity rose at a 1.9 percent annual rate in the fourth quarter, the Labor Department reported Thursday. That was down from a 3.2 percent pace in the third quarter.

The slowdown came as output grew more slowly while hours worked picked up. Businesses produced 3.7 percent more goods and services in the quarter, but hours worked rose 1.8 percent.

Unit labor costs, which show how much businesses pay workers for each unit of output, jumped 4.2 percent in the fourth quarter. That was the biggest increase since the third quarter of 2023 and up sharply from a revised 0.9 percent rise in the third quarter.

For the full year, productivity climbed 2.2 percent in 2024 after a 2.6 percent gain in 2023. That marked the second straight year of solid productivity growth above the long-term average of about 1.5 percent a year.

Labor costs for the year rose 2.1 percent after a 1.0 percent increase in 2023. The combination of slower productivity growth and faster wage gains pushed those costs higher in the final quarter.

Economists watch these figures closely because sustained productivity growth allows wages to rise without feeding inflation. When productivity slows, higher labor costs can put pressure on companies to raise prices.

The fourth-quarter numbers reflect data after revisions to earlier quarters. The government also updated its methods for measuring productivity and costs.

Fed officials have said strong productivity gains in recent years have helped keep inflation in check even as the job market stayed tight. The latest slowdown could complicate that picture if it continues.