WASHINGTON – Business productivity slowed sharply in the third quarter to a 1.9 percent annual rate, but was still faster than expected, a preliminary Labor Department (search) report showed on Thursday, while unit labor costs grew at modest 1.6 percent pace.
Growth in non-farm business productivity (search), or worker output per hour, was the slowest since the fourth quarter of 2002. The moderation in worker efficiency will be good news for the country's sluggish labor market if companies have to ramp up hiring to maintain output growth.
Wall Street analysts had expected productivity to slow to a 1.6 percent rate from a sharply revised 3.9 percent clip in the second quarter. That quarter had initially been reported with a 2.5 percent growth rate.
The faster pace of growth in labor costs compared with a revised 1.0 percent clip between April and June that had initially been posted as a 1.8 percent rate. This could indicate limited inflationary pressure from wages that may help the Federal Reserve (search) keep to a measured pace of interest rate rises.
U.S. firms have lifted output without hiring many new staff, boosting profits as the economy picked up steam but doing little to reduce unemployment.
Hours worked grew at a rate of 2.1 percent in the third quarter, the fastest increase since the third quarter of 1999, as companies ran operations for longer to maintain output growth.
Analysts say weaker productivity may point to stronger jobs numbers ahead. The October employment report, due out on Friday, is expected to show 169,000 new jobs compared with 96,000 in September — thanks in part to hurricane cleanup hiring.
Productivity growth was also substantially lower compared with the third quarter a year ago, when it rose by 9.0 percent.
But officials have predicted it would moderate and still see it consistent with underlying U.S. growth potential — the speed the economy can grow without hitting inflationary speed bumps — of 3.5 to 4 percent.