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Productivity Gets Big Boost; Labor Costs Plunge

Two craftsmen lift a double-pane window at the new Fraunhofer Building Technology Showcase under construction in the Innovation District of Boston, Massachusetts
Robert Nickelsberg | Getty Images
Two craftsmen lift a double-pane window at the new Fraunhofer Building Technology Showcase under construction in the Innovation District of Boston, Massachusetts

U.S. nonfarm productivity increased at a much faster clip than initially thought in the third quarter as businesses held the line on hiring even as output surged, with unit labor costs falling at their fastest pace in almost a year.

Productivity increased at a 2.9 percent annual rate, the fastest since the third quarter of 2010, the Labor Department said on Wednesday.

It had previously estimated that productivity, which measures hourly output per worker, rose at a 1.9 percent pace in the third quarter. In the second quarter, productivity had increased at a 1.9 percent rate.

Economists polled by Reuters had forecast productivity being revised up to a 2.7 percent pace in the third quarter.

The upward revision to productivity growth reflected an upward adjustment to the estimate for third-quarter economic growth to a 2.7 percent pace from 2.0 percent.

But most of the pick-up in GDP growth was because of a build-up in inventories as consumer spending slackened.

Businesses emerged from the 2007-09 recession lean and are showing little urgency to ramp up hiring, relying on their existing workers to meet production and keeping a tight hand on costs such as wages.

Unit labor costs -- a gauge of the labor-related cost for any given unit of output -- fell at 1.9 percent rate in the third quarter, far more than the 0.1 percent drop previously reported.

They fell for a second straight quarter and were up only 0.1 percent from a year-ago, underscoring the lack of wage-related inflation pressures in the economy and helping to keep the door open to further monetary easing by the Federal Reserve to stimulate the economy.

Worker hours rose at a 1.3 percent rate in the third quarter, while nonfarm output surged at a 4.2 percent pace -- the fastest since the fourth quarter of 2011.

Output had previously been reported to have increased at a 3.2 percent pace.

Economists had been expecting nonfarm productivity to rise 2.8 percent and labor costs to drop 1 percent, after rising 2.2 percent and 1.5 percent respectively last month.

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