updated 11/4/2004 8:45:47 AM ET 2004-11-04T13:45:47

The productivity of America’s workers grew at a 1.9 percent annual rate in the third quarter, the smallest gain since late 2002, the government reported Thursday.

Major Market Indices

The increase in productivity — the amount an employee produces for every hour of work — followed a brisk 3.9 percent pace registered in the second quarter, the Labor Department said. The figure for the July-to-September period was better than the 1.7 percent growth rate some economists were forecasting.

Analysts have been expecting productivity growth to slow somewhat based on the hope that businesses would seek to hire workers to help meet customer demand, rather than rely largely on greater efficiencies from fewer or existing workers to do that.

With productivity slowing, unit labor costs rose at a 1.6 percent rate in the third quarter, up from a 1 percent pace in the second quarter. The third-quarter increase marked the biggest advance since the first quarter of 2003, when unit labor costs rose at a 1.6 percent pace.

Unit labor costs is a measure of how much companies pay workers for every unit of output they produce. The recent rise in these costs, should they continue, could put pressure on companies’ profit margins, analysts say.

In other economic news:

Initial claims for unemployment benefits plunged last week by a seasonally adjusted 19,000 to 332,000, the Labor Department said in a second report. A portion of the decline reflected fewer hurricane-related claims in Florida, a department analyst said. Even so, the figures — better than economists expected — offered hope that the recovery in the labor market may be gaining traction.

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