Productivity and Labor Costs Rose More Than Expected in Fourth Quarter

Productivity grew by 2.4% and labor costs moved 4.1% higher, preliminary data for the fourth quarter shows.
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This morning's preliminary fourth quarter

productivity report could rejigger the market's thoughts about the health of the economy and, perhaps more importantly these days, expectations about upcoming interest rate plans.

The numbers were mixed, with productivity stronger than expected, but labor costs per unit also very strong. Productivity measures changes in output per hour for all members of the nation's workforce, while unit labor costs measure the labor costs for each unit of output. Preliminary fourth quarter productivity came in up 2.4%, compared with economists consensus forecasts for a 2.0% increase. The third quarter was revised down to 3.0% from 3.3%.

Unit labor costs grew 4.1% on the quarter. Economists were expecting 3.3%. Third quarter unit labor costs were revised upwards to a 3.2% rise from a 2.9% rise. The fourth quarter rise in unit labor costs is its biggest gain since second quarter of 1999, when it rose 4.3%.

Most on Wall Street are expecting at least another half-point cut by the end of the Fed's next meeting on March 20, and some are hoping for more. The weaker the data, the more aggressive the Fed is likely to be with cuts and the quicker the economy is likely to turn around, goes the thinking. Lower interest rates help to ignite economic growth because they make it cheaper to pay off debt and encourage consumer and corporate spending.

High productivity has often been cited as the golden apple of the unprecedented economic boom of recent years, allowing for a long period of strong growth without runaway inflation. So Fed Chairman

Alan Greenspan, who is staunchly anti-inflation, is particularly interested in keeping that productivity number high.

If monthly data releases begin to show that the economic slowdown is hurting productivity, Wall Street's favorite man Greenspan may be more aggressive about cutting interest rates. And higher unit labor costs could hurt already weakened corporate profits.

Productivity for Q4 '00--preliminary. Source: Labor Department. Actual: +2.4%. Forecast : +2.0%. Previous: +3.0% (revised). Unit Labor Costs: Actual: +4.1%. Forecast: +3.3%. Previous: +3.2%. (revised)

Forecasts are from

Reuters

. For a longer-term economic calendar and more, see

TheStreet.com's

Economic Databank.