U.S. productivity posts biggest drop since 1981 in fourth quarter

FILE PHOTO: Construction workers assemble a scaffold at a job site, as phase one of reopening after lockdown begins, during the outbreak of the coronavirus disease (COVID-19) in New York City, New York, U.S., June 8, 2020. REUTERS/Brendan McDermid

WASHINGTON (Reuters) - U.S. worker productivity fell at its steepest pace since 1981 in the fourth quarter, but the trend remains solid as the COVID-19 pandemic weighs heavily on the less productive industries like leisure and hospitality.

The Labor Department said on Thursday nonfarm productivity, which measures hourly output per worker, dropped at a 4.8% annualized rate last quarter. That was the deepest pace of contraction since the second quarter of 1981.

Data for the third quarter was revised higher to show productivity growing at a 5.1% pace instead of the previously reported 4.6% rate. Productivity rose 2.6% in 2020 compared to 1.7% in 2019.

Economists polled by Reuters had forecast productivity declining at a 2.8% rate in the fourth quarter. Compared to the fourth quarter of 2019, productivity increased at a 2.5% rate.

The coronavirus pandemic has decimated lower-wage industries, like leisure and hospitality, which economists say tend to be less productive.

Hours worked rose at a 10.7% rate last quarter. That followed a 37.1% pace in the third quarter.

Unit labor costs - the price of labor per single unit of output - rebounded at a 6.8% rate after plunging at a 7.0% rate in the third quarter. Unit labor costs increased at a 5.2% rate from a year ago. They rose 4.3% in 2020 after gaining 1.9% in 2019.

Though labor costs have been distorted by the pandemic’s disproportionate impact on lower-wage industries, the rebound supports expectations of higher inflation this year.

Hourly compensation increased at a 1.7% rate last quarter. That followed a 2.2% pace of decline in the July-September quarter. Compensation increased at a 7.8% rate compared to the fourth quarter of 2019. It grew 7.0% in 2020 after rising 3.6% in 2019.

Reporting by Lucia Mutikani; Editing by Andrea Ricci