East Bay Times

Productivi­ty down 4.2%, largest decline since 1981

Economists expect post-pandemic rebound

- By Martin Crutsinger

WASHINGTON >> U.S. productivi­ty fell at an annual rate of 4.2% in the fourth quarter, the largest quarterly decline in nearly four decades.

The revised figure released by the Labor Department Thursday was slightly smaller than the 4.7% decline estimated a month ago.

But it was still the biggest drop since the second quarter of 1981, when productivi­ty fell at a rate of 5.1%.

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 made changes to its estimate 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. Analysts say that finding ways to boost productivi­ty in coming years will be critical to raising living standards.

In the short term, productivi­ty is likely to continue swinging wildly due to disruption­s from the pandemic.

“The data have been distorted by the impact of COVID-19 on output, hours and compensati­on, a trend that is likely to continue in the near term,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

Some economists believe that once the country emerges from the pandemic, there may be a sustained and elevated levels of productivi­ty, in part from workplace efficienci­es gained from businesses finding ways to deal with the a year of related restrictio­ns.

Federal Reserve Chair Jerome Powell suggested Thursday that inflation will pick up in the coming months but that it would likely prove temporary and not enough for the Fed to alter its recordlow interest rate policies.

His message of waitand-see patience caused bond yields to jump and stocks to fall further, signaling that investors foresee stronger growth and higher inflation on the horizon. The yield on the 10year Treasury note had jumped from below 1% at the end of last year to roughly 1.4% Wednesday — and then surged above 1.5% during Powell’s remarks.

Stock investors, too, dumped shares in the midst of Powell’s remarks, in which he suggested that the Fed would need to see both a near-full recovery in the job market and a sustained rise in inflation above its target level before considerin­g a rate hike.

The S&P 500 index ended Thursday with a loss of 1.3% and was showing just a sliver of a gain for the year. The tech-heavy Nasdaq pulled back 2.1%. Higher yields on government bonds can entice some investors to sell stocks and buy Treasurys instead, thereby forcing stock prices down.

Powell also said the outlook for the economy has improved after three months of weak job growth. But he cautioned that the economy and the job market are still far from fully recovered and that full employment would not be achieved this year.

The chairman also offered no signal that the Fed might respond soon to rising rates on Treasury securities by altering its bondbuying policies. The central bank is purchasing about $80 billion a month in government bonds. Some analysts argue that the Fed could focus more of those purchases on the 10-year Treasury to keep it from rising much further.

“The market was really looking for more of a definitive stand perhaps against what’s happened with yields,” said Lisa Erickson, head of traditiona­l investment­s at U.S. Bank Wealth Management. “It was looking for more assurance, for example, that the Fed might take action.”

The surge in Treasury bond yields has also forced up mortgage rates. Last week, the average rate on the benchmark 30year mortgage breached the 3% mark for the first time since July, according to mortgage buyer Freddie Mac.

Powell suggested, though, that the Fed would sit tight for the foreseeabl­e future.

“We think our current policy stance is appropriat­e,” Powell said.

Earlier this week, San Francisco Fed President Mary Daly and Chicago Fed President Charles Evans said they weren’t bothered by the move higher in interest rates. They characteri­zed it as a positive signal that markets expected growth to pick up.

 ?? KEITH SRAKOCIC — THE ASSOCIATED PRESS ARCHIVES ?? Productivi­ty is the amount of output per hour of work. In the short term, productivi­ty is likely to continue swinging wildly due to disruption­s from the pandemic.
KEITH SRAKOCIC — THE ASSOCIATED PRESS ARCHIVES Productivi­ty is the amount of output per hour of work. In the short term, productivi­ty is likely to continue swinging wildly due to disruption­s from the pandemic.

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