The Labor Department says productivity contracted at an annual rate of 2 percent in the October-December quarter, the biggest drop since the first quarter of 2011. Productivity had risen at 3.2 percent rate in the July-September quarter.
Labor costs rose at a 4.5 percent rate in the fourth quarter, the fastest gain since the first quarter of 2012.
Productivity is the amount of output per hour of work. It shrank in the fourth quarter because economic activity contracted while hours worked rose. The economy declined at an annual rate of 0.1 percent, a drop caused mainly by deep defense cuts and slower restocking, changes not expected to last.
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