U.S. productivity plummets, mortgage defaults up

WASHINGTON (Reuters) - U.S. business productivity plunged at the end of last year despite massive job cuts, which show little sign of abating as the 14-month recession deepens, data showed on Thursday.

A man talks on the phone as he waits in line to look for a job during a Job Fair at the Miami Dade College in Miami, Florida March 4, 2009. REUTERS/Carlos Barria

With job losses mounting, households came under increased pressure and one in eight homeowners fell behind on mortgage payments or slipped into foreclosure as the year drew to a close.

While the Labor Department said new claims for jobless benefits fell last week, they remained at levels consistent with a severe recession.

“The economy and the job markets are still in a free fall. Things will get better eventually in the second half of the year, but in the first half they will get much worse,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington Massachusetts.

The weak data, coupled with a warning of a potential bankruptcy at General Motors GM.N, hammered U.S. stocks. The Nasdaq .IXIC ended down 54.15 points at 1,299.59, a six-year low. Government bond prices and the U.S. dollar rallied as investors dumped risky assets in search of a safe-haven.

The Labor Department said U.S. non-farm productivity, a measure of output per worker hour, fell at a revised 0.4 percent annual rate in the October to December quarter, the first drop since the fourth quarter of 2007. It rose at a 2.2 percent pace in the third quarter.

Last month, the department had estimated productivity climbed at a solid 3.2 percent rate in the fourth quarter, but a sharp downward revision to the government’s measures of economic output took the increase away.

“One of the reasons this drop is so surprising is that businesses eliminated a staggering 1.55 million jobs during the quarter. Put differently, cutbacks were not deep enough,” said Mark Vitner, a senior economist at Wachovia Securities in Charlotte, North Carolina.

Nonfarm output was revised to show a steep 8.7 percent pace of decline in the fourth quarter, the sharpest fall since the first quarter of 1982. It was initially estimated as a 5.5 percent drop.

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Analysts said the weakening in productivity, a key driver of corporate profits and household living standards, was yet another bad omen for the distressed labor market.

“In the short term that means employment and hours are likely to be cut even further. It means more pain for companies and workers,” said Vitner.

The number of hours worked dropped at an 8.3 percent annual rate during the fourth quarter, the biggest decline since the first quarter of 1975, the department said.

Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, were revised up to a 5.7 percent increase. But analysts said the rapid upward clip was unsustainable given the economy’s weakness.

In a separate report, the department said the number of workers filing new claims for jobless benefits fell by 31,000 to 639,000 in the week ended February 28.

However, the four-week moving average, which irons out week-to-week volatility, rose by 2,000 to 641,750, the highest since a matching reading in October 1982, when the economy was in the throes of a recession that lasted 16 months.

“I don’t take any comfort in these numbers. They are very high and they tend to be quite volatile month to month,” said IHS Global Insight’s Behravesh.

Escalating job losses as companies struggle with falling revenues and tight profit margins are further crimping households’ spending capacity, creating a vicious cycle for an economy that has been entangled in recession since December 2007.

Top U.S. retailers recorded anemic same-store sales in February, but Wal-Mart Stores Inc WMT.N beat expectations.

Investors are bracing for an ugly report on February employment on Friday. Economists expect it to show job losses around 648,000 and the unemployment rate rising to its highest in a quarter century.

Data from the Mortgage Bankers Association showed about one in eight U.S. homeowners ended 2008 behind on their mortgage payments or in the foreclosure process.

The government is intervening with a $787 billion stimulus package to try and break the economy’s alarming downward spiral. But the success of this plan depends on stabilizing the fractured financial system and collapsed housing market.

Separately, the Commerce Department said factory orders fell 1.9 percent in January after a downwardly revised 4.9 percent decline in December.

It was the sixth straight monthly drop in factory orders, the longest downward streak since the series started in 1992.

New orders for manufactured durable goods were revised to show a 4.5 percent drop from a previously reported 5.2 percent decrease.