The impressive gains in productivity mean employers' costs for labor fell 1.1 percent in the quarter after rising for 10 quarters in a row. Some observers have feared that the tight labor markets will induce employers to bid up wages to attract and retain good help. Tuesday's data show that fear hasn't materialized yet.
Economists surveyed by CBS.MarketWatch.com expected productivity to grow at a 4.3 percent annual rate.
Productivity gains were even more dramatic in the manufacturing sector, which rose 5.2 percent. Durable manufacturers increased their productivity 8.4 percent.
A month ago, the department estimated fourth-quarter productivity at 3.7 percent, but that was before the Commerce Department updated its figures on gross domestic product, which showed the economy growing at a 6.1 percent rate.
For all of 1998, productivity grew 2.2 percent, unit labor costs rose 1.9 percent and real hourly compensation grew 2.6 percent.
Productivity is the key concept behind rising standards of living. However, measuring productivity, especially in services, is difficult and the financial markets generally ignore the quarterly productivity numbers. There's no denying, however, that productivity gains are helping to keep inflation at bay while the economy grows at more than 4 percent year after year.
In the fourth quarter, nonlabor unit costs (largely materials) rose 2.2 percent, the first gain in five quarters, a sign the dramatic deflation in commodities may have reached its bottom.
Written By Rex Nutting, CBS MarketWatch