- Productivity grew at an annualized rate of 6.6% in the fourth quarter of 2021, the government announced Thursday.
- That beat the median estimate of a 3.2% jump from economists polled by Bloomberg.
- The report shows an increase in production per hour as economic growth similarly accelerates in 2022.
Worker productivity skyrocketed in the final three months of 2021 as the economic rebound gathered pace and the Omicron wave began to swell.
Nonfarm business employee productivity rose at a 6.6% annualized rate in the fourth quarter, the Bureau of Labor Statistics reported Thursday. Economists polled by Bloomberg had expected a 3.2% gain. The increase follows a 5.2% contraction in the third quarter that marked the biggest decline since 1981.
Productivity also rose 2% from the fourth quarter of 2020, according to the report. This is the strongest year-on-year growth since the first quarter of 2021.
Despite the overall increase, the manufacturing sector saw productivity fall at an annualized rate of 0.8%, likely reflecting continued headwinds from the global supply chain crisis. Manufacturers of non-durable goods were responsible for most of the decline, as the sector faced a 3.7% annualized drop in productivity. Manufacturers of durable goods enjoyed an annualized gain of 0.8%.
The government productivity index also showed an annual growth rate of 2.2% from the fourth quarter of 2019. This exceeded the average rate of 1.4% seen during the previous economic cycle, which ran from 2007 to 2019. It is also just above the long-term rate. average growth rate of 2.1% seen since 1947, according to the report.
The report shows that productivity – measured by output per hour – is rebounding as the economic recovery similarly gathered pace. U.S. gross domestic product grew at an annualized rate of 6.9% in the fourth quarter, according to data released last week. That beat the median forecast by a 5.5% jump and marked the fastest growth since the third quarter of 2020.
Admittedly, quarterly productivity data can be highly volatile, and pandemic-era business practices have added to the turmoil. The shift to innovations such as QR code menus and telecommuting helped boost productivity during shutdowns, but the return to pre-pandemic practices likely muddied quarterly readings.
Yet the return to productivity growth offers an encouraging sign that soaring wages will not worsen inflation. Wage growth through 2021 has been the strongest in at least two decades as labor shortages force companies to pay higher wages than usual. Yet the increases have raised fears of a wage-price spiral, in which soaring wages lead to even higher inflation.
Strong wage growth ‘hasn’t been a major contributor’ to inflation so far,
President Jerome Powell said in December. Since productivity has increased in kind, the increases have been a boon to workers without increasing new risk, he added.
“We don’t see it yet, but if you had something where real wages were consistently higher than productivity growth, that would put upward pressure on businesses and they would raise prices.”