In the fourth quarter, productivity increased 2.4 percent in the business sector and 3.0 percent in the nonfarm business sector. In both sectors, the fourth-quarter productivity increases reflected faster growth in output than in hours worked. When the annual averages for 2006 were compared with annual averages for 2005, productivity rose 2.2 percent in the business sector and 2.1 percent in nonfarm businesses--slightly less than the 2.3-percent gains in both sectors from 2004 to 2005.
This number was higher than expected. And while the 2006 number was slightly less than the 2005 number, it was not off by much. Higher productivity helps to remove inflationary pressure in the economy.
In addition:
Unit labor costs, which relate hourly compensation to output per hour, increased 1.7 percent in the fourth quarter and 3.3 percent in the third quarter, after falling 2.5 percent in the second quarter of 2006.
This is very good news on the inflation front.
I should add, I don't think this news is enough to push the Fed to lower rates. Historically, rates are still low and just yesterday a Fed President stated inflation was still too high. However, these numbers help to remove any possibility of a rate increase in the near future as well.
