U.S. productivity grows at slowest rate in nine years

Productivity in U.S. nonfarm business sector rose by 2.1 percent in 2006, the slowest rate in nine years, while labor costs increased at the fastest rate in sixyears, the Labor Department reported on Wednesday.

The 2.1 percent gain in productivity, the amount of output produced for each hour of work and the key measure of the economy's efficiency, was down from an increase of 2.3 percent in 2005. It was the slowest pace since a 1.6 percent rate in 1997.

For the final quarter of last year, however, productivity grew at an annual rate of 3 percent, nearly double what economists had been expecting.

Productivity is seen as an essential factor in long-term economic health, allowing companies to reap higher profits while giving workers higher pay without raising prices.

Unit labor costs, or costs of wages and benefits for each unit of output, rose 3.2 percent for all of 2006, compared to a 2 percent gain in 2005 and marking the fastest rise since a 4.2 percent increase in 2000.

Labor costs rose by 1.7 percent in the final quarter of last year, following an increase of 3.2 percent in the third quarter.

The slowdown in growth of unit labor costs, a key inflation gauge, should be a welcome showing for the Federal Reserve, which is concerned that wage pressures could fuel inflation.

Soource:Xinhua