Bloomberg News/Landov
The U.S. economy used to very productive like the Instant Pot, the popular device that allows families to put more food on the table in less time. Productivity has accelerated in the past year — a welcome sign — but it still continues to lag even as the U.S. nears a record for longest economic expansion ever.
The numbers: The productivity of the American workforce rose solidly again in the fourth quarter, reflecting a recent upturn that could bode well for the U.S. economy if it’s sustained.
U.S. productivity advanced at an annual pace of 1.9% in the final three months of 2018, up slightly from a revised 1.8% in the third quarter, the government said Thursday.
The rate of productivity — the key to a higher standard of living — rose 1.8% year-over-year, the fastest 12-month increase since 2015.
What happened: Companies increased the amount of goods and services they produced, known as output, by 3.1%. The hours workers spent on the job edged up 1.2%.
Productivity is determined by the difference between output and hours worked.
Unit-labor costs rose at a 2% clip in the fourth quarter, but just 1% in the past 12 months, suggesting little likelihood of an outbreak in inflation.
Read: Trade deficit soars to 10-year high, foiling Trump White House efforts to rein it in
Big picture: Rising productivity is the key to a higher standard of living in the long run. When workers produce more in the same amount of time, companies can increase pay without cutting into profits. Higher productivity also keeps inflation at bay.
Productivity has been weak for years, but lately it’s shown signs of life, perhaps because of a ramp-up in business investment in 2016 through early 2018.
Economists say a sustained burst of higher business investment is need to lift productivity, and while spending did increase in the past few years, businesses now appear to be cutting back.
Read: The rise of the robots and decline of inflation: How AI is keeping prices low
Market reaction: The Dow Jones Industrial Average DJIA, -0.52% DJIA, -0.52% and S&P 500 SPX, -0.65% were set to open modestly higher in Thursday trades.
The 10-year Treasury yield TMUBMUSD10Y, -0.94% fell a few basis points to 2.67%. Many loans such as mortgages and auto loans are tied to changes in the 10-year note, whose yield has fallen from a seven-year high of 3.23% in October.
