(Bloomberg News) The productivity of U.S. workers rose in the fourth quarter at a slower pace than in the prior three months, showing companies are reaching the limits of how much efficiency they can squeeze from existing workforces.

The measure of worker output per hour increased at a 0.7 percent annual rate following a 1.9 percent gain in the prior three months, figures from the Labor Department showed today in Washington. Expenses per employee climbed at a 1.2 percent rate after dropping 2.1 percent in the third quarter.

Businesses in the U.S. that are growing more confident about the economy may be hiring more workers after the recession and its aftermath led them to search for ways to lift efficiency without creating new jobs. Payrolls grew by 145,000 in January, a Labor Department report is forecast to show tomorrow.

"As job growth picks up, we're going to naturally see some slowing in productivity," Troy Davig, a senior U.S. economist at Barclays Capital Inc. in New York, said before the report.

Fourth-quarter productivity was projected to rise 0.8 percent, according to the median forecast of 59 economists surveyed by Bloomberg News. Estimates ranged from a 0.5 percent drop to gains of 2 percent.

Unit labor costs, which are adjusted for efficiency gains, were forecast to rise 0.8 percent, the survey median showed.

Another Labor Department report today showed claims for jobless benefits fell last week, indicating the labor market is improving.

Applications for unemployment insurance payments dropped by 12,000 to 367,000 in the week ended Jan. 28. The median forecast of 46 economists in a Bloomberg survey projected 371,000.

Slowdown in 2011

For all of 2011, productivity also climbed 0.7 percent, the smallest increase since 2008, when it rose 0.6 percent. The advance is smaller than the 2.5 percent increase on average from 2000 to 2010, indicating efficiency gains are getting harder to come by.

While businesses were able to boost productivity during the recession as employment fell faster than output, researchers at the Congressional Budget Office are among those predicting the severity of the 2007-2009 slump will diminish future gains.

"The recession could also reduce the growth of potential total factor productivity over the next several years by delaying how quickly resources are reallocated to their most productive uses, slowing the rate at which workers gain new skills as technologies evolve, and curtailing businesses' spending on research and development," the report said.

Inflation-Adjusted Pay

Labor expenses last year increased 1.2 percent, the most since a 2.8 percent gain in 2008. Adjusted for inflation, hourly earnings dropped 1.2 percent in 2011, the biggest decrease since 1989, the report showed.

Among manufacturers, productivity decreased at a 0.4 percent rate in the fourth quarter.

The U.S. economy expanded at a 2.8 percent annual pace in the final three months of 2011, the fastest rate in more than a year, Commerce Department figures showed last week.

Employment gains accompanied that growth. Payrolls rose by 412,000 workers from October through December. The median forecast in a Bloomberg News survey ahead of tomorrow's Labor Department release projects employment increased again in January.

Parts suppliers "have been able to feel a little more confident about hiring people back, maybe taking on a second shift, investing in some capacity, whatever their particular need is and just feeling a little bit better and as they go into 2012," Mark Pigott, chief executive officer of Paccar Inc., said in a Jan. 31 conference call.

The Bellevue, Washington-based maker of Kenworth and Peterbilt trucks said it estimates U.S. and Canadian truck sales will rise by around 14 percent in 2012.