U.S. worker productivity increased at its fastest pace in three years in the third quarter but the trend remained moderate, suggesting that a recent acceleration in economic growth was unlikely to be sustained.
Other data on Thursday showed the number of people filing for unemployment benefits fell to a near 44-1/2-year low last week, offering further evidence that the labor market was tightening despite hurricane-related disruptions in September.
The surge in productivity last quarter held down growth in labor costs, indicating that inflation pressures could stay benign for a while. Still, jobs market strength bolsters the case for the Federal Reserve raising interest rates in December. The U.S. central bank kept rates unchanged on Wednesday.
"While the data point to a solid economy, they also reinforce the view that growth is not likely to remain strong for an extended period without improved wage gains," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "Productivity is still growing too slowly."
The Labor Department said nonfarm productivity, which measures hourly output per worker, rose at a 3.0 percent annualized rate. That was the quickest pace since the third quarter of 2014 and followed an unrevised 1.5 percent rate in the April-June period.
The rise outpaced economists' expectations for a 2.4 percent pace and was flagged in last week's third-quarter gross domestic product report, which showed the economy growing at a 3.0 percent rate during that period.
Productivity increased at a 1.5 percent rate compared to the third quarter of 2016. Manufacturing productivity fell at a 5.0 percent rate last quarter, the steepest rate of decline since the first quarter of 2009.
Overall, worker productivity has increased at an average annual rate of 1.2 percent from 2007 to 2016, below its long-term rate of 2.1 percent from 1947 to 2016. This, together with slowing population growth indicate the economy's potential growth rate has declined.
As such, analysts say the economy could struggle to achieve the 3 percent annual growth, which has been pledged by President Donald Trump. The Trump administration is pushing for big tax cuts and deregulation to achieve this goal.
Congressional Republicans on Thursday called for a range of changes to the U.S. tax code, including slashing the corporate tax rate and reducing the number of tax brackets for individuals.
The dollar fell against a basket of currencies on the Republican tax reform proposal, while prices for U.S. Treasuries rose. U.S. stocks were little changed.