US 4th quarter productivity revised to a decline of 4.2%
Service sector growth slows sharply in Feb
WASHINGTON, March 4, (AP): U.S. productivity fell at an annual rate of 4.2% in the fourth quarter, a sharp decline but not as large as first estimated.
That revised figure released by the Labor Department Thursday was slightly smaller than the 4.7% decline estimated a month ago.
Labor costs rose at a 6% rate in the fourth quarter, slightly lower than the 6.8% first estimated.
Productivity is the amount of output per hour of work. The revisions reflected the fact that the government revised its estimate of the performance of the gross domestic product, the country’s total output of goods and services, to show an increase of 4.1% at an annual rate in the fourth quarter slightly higher than its initial estimate of 4% growth.
For all of 2020, productivity rose 2.5%, up from an annual gain of 1.8% in 2019. In recent years, productivity growth has been exceptionally weak and economists are uncertain about the cause.
Meanwhile, growth in the services sector, where most Americans work, slowed sharply in February with hurdles related to the pandemic hindering growth.
The Institute for Supply Management said Wednesday that its index of service sector activity dropped to a reading of 55.5% in February, down 3.4 percentage-points from January when activity neared a two-year high.
Even with the decline, it was the ninth straight month of growth in the services sector. Any reading above 50 signifies growth.
Economists had expected some rollback from the January high but the size of the February drop was much bigger than expected, driven by a sharp decline in the new orders index. That fell to 51.9%, down from a January reading of 61.8%. The index readings for business activity and employment also fell from the previous month.
Andrew Hunter, senior U.S. economist for Capital Economics, noted that price pressures jumped sharply in February with the prices paid index climbing to a reading of 71.8%, a level that he said signaled that the Federal Reserve’s preferred price gauge could be rising by around 2.4% within the next few months.
The Fed’s target for inflation is 2% but Fed officials have said they are expecting a temporary jump in prices in coming months as the country re-opens but they do not expect the inflation readings to last.
Anthony Nieves, chair of the ISM’s services survey committee, said that higher energy prices were impacting the supply chain which is heavily dependent on trucks to transport products to retail stores and other establishments.
Many analysts saw the slowdown in services sector activity in February as just a brief pullback from January’s high level with further gains coming in the months ahead.
“The services sector is locked and loaded for a summer surge,” said Oren Klatchin, lead U.S. economist at Oxford Economics. “Encouraging Covid statistics, accelerating vaccine distribution and the Biden administration’s push to make vaccines available to every adult American by the end of May offer hope the health crisis’ end is nearing.”
In their survey responses, the ISM report said that service sector businesses were mostly optimistic about the recovery although they did cite supply chain problems such as production-capacity restraints and material shortages among the problems they are facing.
In a separate report, the number of Americans applying for unemployment benefits edged higher last week to 745,000, a sign that many employers continue to cut jobs despite a drop in confirmed viral infections and evidence that the overall economy is improving.
Thursday’s report from the Labor Department showed that jobless claims rose by 9,000 from the previous week. Though the pace of layoffs has eased since the year began, they remain high by historical standards. Before the virus flattened the U.S. economy a year ago, applications for unemployment aid had never topped 700,000 in any week, even during the Great Recession.
All told, 4.3 million Americans are receiving traditional state unemployment benefits. Counting supplemental federal unemployment programs that were established to soften the economic damage from the virus, an estimated 18 million people are collecting some form of jobless aid.
Restrictions on businesses and the reluctance of many Americans to shop, travel, dine out or attend mass events have weighed persistently on the job market. Job growth averaged a meager 29,000 a month from November through January, and the nation still has nearly 10 million fewer jobs than it did in February 2020. Though the unemployment rate was 6.3% in January, a broader measure that includes people who have given up on their job searches is closer to 10%.
“The source of all labor market damage continues to be COVID-19,” said AnnElizabeth Konkel, economist at the Indeed Hiring Lab. “Increased vaccine distribution is promising, since the public health situation must improve for there to be a full economic recovery. When we completely return to ‘normal’ is still unknown.”
The data firm Womply reports that 64% of movie theaters and other entertainment venues, 40% of bars and 34% of hair salons and beauty shops are closed. And on Wednesday, the Federal Reserve reported that across the country, “overall conditions in the leisure and hospitality sector continued to be restrained by ongoing COVID-19 restrictions.”