For productivity, vigorous quarter ended sluggish year

WASHINGTON —  Workers stepped up their efficiency in the final three months of 2006, yet productivity still turned in the weakest yearly performance in almost a decade.

The Labor Department reported Wednesday that productivity, or output per hour of work, rose at a 3% annual rate for October through December. That compares with a 0.1% decline in the previous three months.

For the year, productivity edged up 2.1%, the weakest performance since the 1.6% rise in 1997.

Productivity is needed to boost living standards. It allows businesses to pay workers more, because of their increased output, without having to raise the cost of their products.

A gauge of wage pressures tied to productivity jumped 3.2% last year, the biggest annual increase in six years. But over the final three months of 2006, the cost of labor per unit of output did improve. It slowed to an increase of 1.7%, compared with a 3.2% rise from July to September.

Rising wages are good for workers. But if wage increases outstrip gains in productivity, businesses may raise prices, setting off a classic wage-price spiral.

The Federal Reserve is keeping close tabs on the performance of productivity and unit labor costs. Policymakers there are watching for signs that slowing productivity and rising wage pressures may be stoking inflation.

The hope is that businesses will meet workers’ wage demands by trimming their record profits rather than making goods more expensive.

The rebound in productivity in the fourth quarter was double what had been expected. Analysts said that performance and the slowdown in unit labor costs should ease inflation worries at the Fed.

A separate report from the Fed showed borrowing by U.S. households rose in December as consumers took out more personal loans.

The central bank said consumer credit rose at a 3% annual rate in December, far below the 6.9% surge in borrowing in November.

The December increase was in line with expectations. Analysts had expected consumers to slow their borrowing to a pace more in line with income growth.

The slowdown in overall borrowing reflected a big drop in the category that included credit card debt, which rose at an annual rate of 0.8% in December, compared with a 13.8% rate of growth in November.

The category of credit that covered auto loans increased, growing at a 4.3% rate in December after the 2.9% pace in November.

The increased borrowing pushed total consumer debt up $6 billion in December to a record $2.4 trillion.

For 2006, consumer debt grew by $105 billion, slightly higher than the $93.2-billion increase in 2005.

The Fed’s measure of consumer borrowing excludes mortgages and other loans secured by real estate.