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U.S. business productivity leaps in third quarter

U.S. business productivity surged in the third quarter, far outpacing Wall Street expectations, and slimmer compensation gains helped shrink labor costs, a government report showed on Thursday.
/ Source: Reuters

U.S. business productivity surged in the third quarter, far outpacing Wall Street expectations, and slimmer compensation gains helped shrink labor costs, a government report showed on Thursday.

The Labor Department said growth in non-farm productivity, or worker output per hour, grew at a 4.1 percent annual rate from July to September after an upwardly revised 2.1 percent second-quarter gain.

Wall Street had expected productivity to increase at a 2.5 percent pace following a previously estimated 1.8 percent second-quarter advance.

Unit labor costs — a key profit pressure gauge — declined at an annual rate of 0.5 percent, which could ease worries at the Federal Reserve about inflation expectations. Analysts had forecast a much stronger 2 percent gain in unit labor costs.

Slower compensation gains in the third quarter helped keep costs low.

Compensation rose 3.6 percent, slowing from a 4 percent advance in the second quarter. After adjustment for inflation, hourly compensation declined 1.4 percent in the third quarter.

Hours worked held nearly steady, rising at a 0.1 percent annual rate in the third quarter.

Advances in unit labor costs focus attention on inflation as the economy expands and are normally watched closely by the Fed. Productivity gains affect how companies absorb rising costs like energy, and rising productivity allows companies to hold prices down.