U.S. worker productivity rose at the strongest pace in four years in the third quarter, pushing labor costs down, the government said Wednesday in a report offering comfort to the inflation-wary Federal Reserve.
Non-farm productivity, or hourly output per worker, increased at a 4.9 percent annual rate in the third quarter, the Labor Department said, well ahead of Wall Street forecasts.
It was the strongest growth in productivity since a 10.4 percent surge in the third quarter of 2003 and was more than double the revised 2.2 percent gain posted during the second quarter.
"It's a positive signal for growth and it also shows less inflationary pressure. It's very encouraging for the Fed," said economist Michelle Meyer of Lehman Brothers in New York.
The increase in productivity more than offset a 4.7 percent rise in compensation and pushed unit labor costs, a gauge of inflation and profit pressures, down at 0.2 percent pace, the first drop in more than a year.
The report, however, failed to lift spirits on Wall Street, where investors fretted about record high oil prices and a slump in the value of the dollar. The blue chip Dow Jones industrial average was down around 150 points in late-morning trade.
The U.S. central bank lowered benchmark interest rates by three-quarters of a percentage point over the past two months to offer support to the economy, which is lumbering under a steep housing downturn and related strains in credit markets.
Prices for U.S. government debt rose on Wednesday as traders best the central bank would be pushed to cut interest rates again, despite reluctance among some policy-makers.