U.S. Labor Productivity Saw Worst Plunge Since 1974

In 2022, the U.S. saw its largest annual decline in productivity in almost five decades.

The nonfarm labor productivity, which measures the output of goods and the hours worked, fell 1.5 percent in the last three months of this year compared to the previous year. This was the largest drop in 40 years, despite worsening declines in 2022.

In 2022, productivity dropped 1.3 percent, which is the largest annual decline since 1974 when it fell 1.7 percent.

Productivity was volatile last year. On a 12-month basis, productivity fell by 0.4% in the first quarter. It plunged 2.1% in the second quarter and dropped 1.1 percent during the third quarter.

However, productivity increased at an annualized and seasonally adjusted rate of three percentage points in the third quarter compared to the previous quarter. This was higher than Wall Street expected for a 2.4% increase. The third quarter saw productivity rise at an annualized rate of 1.4 percent, which was higher than the preliminary estimate, which was 0.8 percent.

These two quarters of consecutive gains were preceded in quarter one by a plunge of 5.9 percent and in quarter two by a drop of 4.1 percent. The first quarter plunge was the most severe since 1960’s spring. The second quarter was also the worst since 1990’s 4.1 percent productivity drop.

U.S. labor productivity increased for the second consecutive quarter of the fourth quarter. However, for the entire year productivity saw its largest decline in almost 50 years.

The Labor Department reported Thursday that U.S. nonfarm labour productivity, which is a measure of the U.S. production of goods and services per hour worked, rose at a seasonally adjusted annual rate (3%) in the fourth quarter compared to the previous quarter.

The Labor Department reported that unit labor costs, which is a measure of worker compensation and productivity, increased at an annualized rate of 1.1 percent in the fourth quarter compared to the previous quarter. This reflects a 4.1 per cent increase in hourly pay and a 3.0 percent increase productivity.

The unit labor costs rose by 4.5 percent in the past four quarters, roughly twice what would be expected consistent with the Federal Reserve inflation mandate.