U.S. productivity grew much more slowly in the fourth quarter of last year than previously thought and labor costs soared.

Meanwhile, factory orders took their biggest tumble in six years during January and an earlier estimate for durable goods demand was lowered, a negative sign for manufacturing.

Nonfarm business productivity rose at a 1.6% rate between October and December, the U.S. Labor Department said today, down from an original estimate of a 3% gain.

Third quarter productivity was revised down to a 0.5% decline from a 0.1% drop. Productivity was up 1.6% on average for 2006 as a whole, its slowest annual growth pace since 1995. Productivity is output divided by hours worked.

Last quarter’s productivity revision was in line with Wall Street expectations. Economists had call for a 1.5% gain. However, labor costs were revised up more sharply than expected.

The downward productivity revision was triggered in part by much slower output growth. Fourth quarter gross domestic product growth was last week revised down to just 2.2% from 3.5% due to slower inventory accumulation and a reduced impetus from trade. The latest productivity data also incorporated recent upward revisions to 2006 payrolls.

Unit labor costs — a gauge of inflationary pressures — swelled by 6.6% last quarter, up from the prior estimate of 1.7%. They rose 3.2% on average in 2006, the sharpest annual increase since 2000.


Meanwhile, factory-goods orders decreased by 5.6%, after rising 2.6% during December, the U.S. Commerce Department said todayy. December orders were originally seen climbing 2.4%. Wall Street economists had projected a 4.5% decline in overall January factory orders. The 5.6% drop was the largest since 8.6% in July 2000.