Economic Report: U.S. productivity increases in 2019 at fastest pace in nine years

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The numbers: The productivity of American workers increased in 2019 at the fastest annual pace in nine years — but slower U.S. economic growth and weak business investment suggest the gains might not last.

Productivity snapped back with a 1.4% increase in the fourth quarter after a small decline in the autumn, the government said Thursday.

The growth in productivity in 2019 accelerated to 1.7% from 1.3% in the prior year and hit the highest level since 2010.

Productivity measures the number of goods or services that workers supply each hour. When workers are more productive, they are likely to earn more money. Higher productivity also boosts profits and helps to keep inflation from getting out of hand.

What happened: Companies increased the amount of goods and services they produce, known as output, by 2.5% in the final three months of 2019. The hours workers spent on the job rose by 1.1%.

Productivity is determined by the difference between output and hours worked.

Overall productivity increased at year end despite a 1.2% decline among manufacturers. Heavy industry cut back production and hours after exports stalled amid a trade war with China. A month-long strike at General Motors GM, +1.92%  in the fourth quarter also depressed productivity.

Unit-labor costs, meanwhile, climbed a modest 1.4% annual pace in the fourth quarter. They increased 2% for the full year.

Read: Wage growth in the U.S. is no longer accelerating

Also: These states had the lowest unemployment rates in 2019. What about swing states?

Big picture: The U.S. economy has suffered from slower gains in productivity since 2007, and even though it’s picked up in recent years, it’s still on the weak side.

Productivity has averaged just 1.3% during the current expansion, well below the 2.1% average since the end of World War Two. Rising productivity has historically been the key to a better quality of life for American workers and their families.

A low level of business investment is seen as one the chief culprits. It’s hard for workers to raise their productivity if companies don’t invest more in machines, technology, worker training and the like.

Business investment is unlikely to increase much in 2019, economists say, amid lingering trade tensions, the pending 2020 presidential election and side effects from efforts to contain China’s coronavirus.

Market reaction:The Dow Jones Industrial Average DJIA, +1.68% and S&P 500 SPX, +1.13% were set to rise again in Thursday trades. Stocks have rallied this week close to record highs following a big drop last week tied to worries over the coronavirus.

Read: Manufacturers grow for first time in 6 months — but that was before coronavirus

The 10-year Treasury yield TMUBMUSD10Y, +0.52% edged up to 1.65%.