Productivity Soars in Third Quarter

The productivity of U.S. businesses soared in the third quarter, as firms managed to raise output at a pace not seen in over 10 years with only a small increase in the number of hours workers put in on the job, the government said on Thursday.

Non-farm business productivity climbed at an 8.1 percent annual rate in the third quarter, accelerating from an upwardly revised 7.0 percent gain in the prior three months, the Labor Department (search) said.

The sharp rise in productivity helped business keep a lid on the costs of production (search). Unit labor costs (search), a gauge of potential wage pressures, fell at a 4.6 percent pace, suggesting a good quarterly corporate profit performance.

Economists polled by Reuters had forecast an 8.5 percent gain in productivity and a 4.7 percent drop in unit labor costs.

Analysts had expected a big gain in productivity after the government reported last week that the U.S. economy grew at a 7.2 percent annual pace in the third quarter, the strongest growth rate in nearly two decades.

Despite that strong growth, the economy shed 41,000 non-farm jobs, as gains in productivity allowed firms to meet increased demand for their goods and services without expanding their workforce.

Some economists have begun to speculate that the trend rate of U.S. productivity, which accelerated to around a 3.5 percent annual rate in the mid-1990s, may have picked up further.

Over the last four quarters, productivity has risen 4.7 percent.

Economists say that over time, strong productivity growth will raise standards of living. But they say in the short-run it could prove a hurdle to job creation, a key element for a sustainable expansion.