Much Better than Expected Productivity and ULC Figures for the 4th Quarter

Fourth quarter productivity rose more than expected at +1.8% annualized (consensus +.5%), and ULC gains were slower than expected at +2.1% annualized (consensus +3.5%). The increased worker efficiency was due to the largest drop in hours worked (-1.5%) in five years. Unit labor costs are adjusted for efficiency gains, so even though compensation growth held almost steady at 3.9%, ULC fell on due the increased output per worker. Labor costs represent about 2/3rds of the production cost of most goods and services. For the year as a whole, productivity improved to 1.6% in 2007 versus only 1% in 2006. ULC though rose to a seven year high of 3.1%. Compared to the fourth quarter a year ago, productivity is up +2.6%, and ULC are only up +1% YoY. Net, these are good figures. ULC remaining below 3% will ease inflation concerns, and productivity is slowing its deceleration from the higher pace of the 90s