US Q3 productivity revised up, wages slashed

Patterson UTI Drilling representative, left, speaks with job seekers during the Eagle Ford Shale Job Fair in Corpus Christi, Texas.
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U.S. nonfarm productivity grew a bit faster than initially thought in the third quarter, while sharp downward revisions to compensation pointed to muted wage inflation that should give the Federal Reserve room to keep interest rates low for a while.

The Labor Department said on Wednesday productivity expanded at a 2.3 percent annual rate instead of the previously reported 2.0 percent pace.

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Economists polled by Reuters had expected productivity, which measures hourly output per worker, would be raised to a 2.4 percent rate to reflect upward revisions to third-quarter gross domestic product.

The government last week raised third-quarter GDP growth to a 3.9 percent pace from a 3.5 percent rate.

The trend in productivity, however, remains relatively weak, despite the upward revision. Productivity rose 1.0 percent compared to the third quarter of 2013.

Businesses have been hiring more workers to increase productivity, helping to put a dent in unemployment.

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Compensation measures were revised sharply lower in line with downward revisions to income data published last week.

Unit labor costs, the price of labor for any given unit of production, fell at a 1.0 percent rate in the third quarter. They had previously been reported to have increased at a 0.3 percent pace.

Unit labor costs for the second quarter were also revised down to show them declining at a steeper 3.7 percent rate instead of the previously reported 0.5 percent pace.

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That should ease fears that wage growth is rising a little bit faster than the Fed's expectations and cause the U.S. central bank to wait longer to raise interest rates.

Wage growth is one of the key factors that will determine when the Fed will start raising its short-term interest rate, which it has kept near zero since December 2008.

Compensation per hour increased at a 1.3 percent rate in the third quarter rather the 2.3 percent pace reported last month.

Compared to the third quarter of last year, hourly compensation rose 2.2 percent instead of the 3.3 percent advance reported last month.