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The productivity of U.S. workers saw its biggest annual decline in 2022 in nearly five decades.

Nonfarm labor productivity—a measure that compares the output of goods and services to the number of hours worked—dropped 1.5 percent in the final three months of the year when compared with the year-earlier period. Apart from worse declines earlier in 2022, this was the biggest drop in four decades.

On average, productivity fell 1.3 percent in 2022, the biggest annual drop since 1974, when productivity fell 1.7 percent on average.

Last year was a volatile year for productivity. Productivity fell by 0.4 percent on a 12-month basis in the first quarter, plunged 2.1 percent in the second quarter, and sank 1.1 percent in the third quarter.

Compared with the prior quarter, however, productivity improved at a seasonally adjusted and annualized rate of three percent, exceeding Wall Street’s expectations for a 2.4 percent improvement. In the third quarter compared, productivity rose at a 1.4 percent annualized rate, upwardly revised from the preliminary estimate of 0.8 percent.

Those two consecutive quarters of gains were preceded by a 5.9 percent plunge in the first quarter and a 4.1 percent drop in the second. The first quarter plunge was the worst since the spring of 1960. Apart from that, the second quarter was the worst since a 4.1 percent productivity decline in 1990.

U.S. labor productivity rose for the second consecutive quarter in the fourth quarter, although for the year as a whole productivity posted its biggest decline in nearly five decades.

U.S. nonfarm labor productivity–a measure of goods and services produced in the U.S. per hour worked-rose at a seasonally adjusted annual rate of 3% in the fourth quarter from the prior quarter, the Labor Department said Thursday.

Unit labor costs, a measure that compares worker compensation with productivity, rose at a 1.1 percetn annualized pace in the fourth quarter from the prior quarter, the Labor Department said.  That reflects a 4.1 percent increase in hourly compensation and a 3.0. percent increase in productivity.

Unit labor costs increased 4.5 percent over the last four quarters, which is roughly double what would be consistent with the Federal Reserve inflation mandate.

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