Productivity lags in fourth quarter

Productivity rose 1.8% over the final quarter of 2007, a significant drop from the 6% increase achieved in the third quarter. Productivity for the entire year of 2007 rose by 1.6%, according to a report released by the U.S. Labor Department today. Labor costs increased by 2.1% in the fourth quarter of 2007, after two consecutive declining quarters; costs were down 1.9% in the third quarter and 1.1% in the second quarter. Productivity, measured as a function of output per hours of work, is an important economic indicator, mainly because increases in productivity allow employers to increase wages without raising product prices. The annual average productivity was greater in 2007 than in 2006, but nowhere near the average gains of 3.2% enjoyed from 2000 through 2004.