Submitted by CARPE DIEM

The BLS reported today that productivity in the nonfarm business sector increased by 1.9% in the fourth quarter of 2007 (see chart above), and was up by 2.9% compared to QIV of 2006. Productivity increased by 6.3% in the third quarter of 2007.

From the Wall Street Journal:

On balance, the data should provide some relief to Fed officials that economic fundamentals remain strong.

Though down from the third quarter, productivity held up quite well considering the slowdown in the overall economy. And there are signs that productivity should hold up this year as well. Companies are shedding workers in response to the slower economy, judging by recent monthly employment and weekly jobless claims data. And much of the economy’s growth is now being generated by exports, which tend to be more productive than the economy-wide average.

That could provide a key disinflationary offset to higher energy and food prices and the falling dollar. The downside, though, is if greater efficiency comes at the expense of payrolls, which could in turn hurt consumer confidence and spending, which makes up the bulk of economic activity.
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