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Productivity declines most in nearly two years

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WASHINGTON (Reuters) - U.S. nonfarm productivity fell in the fourth quarter by the most in nearly two years as output increased marginally despite steady gains in employment, the Labor Department said on Thursday.

Productivity declined at a 2 percent annual rate, the sharpest drop since the first quarter of 2011 and a larger fall than the 1.3 percent forecast in a Reuters poll.

Output rose 0.1 percent outside the farm sector, while hours worked rose by 2.2 percent.

Productivity is expected to rebound in the current period because analysts believe weak output during the fourth quarter was partially due to temporary factors like an unusually sharp decline in government spending on the military.

Data last week showed output in the overall economy contracted 0.1 percent in the fourth quarter, and analysts expect gross domestic product to return to growth early this year.

Unit labor costs - a gauge of the labor-related cost for any given unit of output - jumped at 4.5 percent rate in the fourth quarter, beating analysts' expectations of a 3 percent gain.

(Reporting by Jason Lange; Editing by Andrea Ricci)

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