4Q productivity up 6.9%, labor costs drop 5.9%

WASHINGTON - The productivity of U.S. workers kept surging in the fourth quarter as companies squeezed more out of remaining employees to boost earnings.

A measure of employee output per hour rose at a 6.9 percent annual rate, capping the biggest one-year gain since 2002, according to revised figures released Thursday by the Labor Department.

Labor costs dropped at a 5.9 percent pace, more than anticipated, and fell 1.7 percent for all of 2009, the biggest drop since records began six decades ago.

The combination of rising productivity and falling labor costs bolsters company profits and helps keep inflation at bay.

But it also puts American households under stress, leaving them with less income to increase consumer spending. And that spending is the key ingredient to economic growth.

Companies, struggling with the deepest recession in decades, have cut 8.4 million jobs over the past two years.

"Businesses have done a superb but ultimately unsustainable job of utilizing the labor resources at their disposal," said Richard DeKaser, chief economist at Woodley Park Research in Washington.

"They've experienced rising output level without increasing employment to a degree that can't persist," said DeKaser.

Economists had forecast productivity would rise at a 6.3 percent annual pace.

For all of 2009, productivity increased 3.8 percent.

Hours worked rose at a 0.6 percent pace in the fourth quarter, indicating companies were already having difficulty meeting demand with existing staff.

- Combined news services