Worker Productivity Slows to Standstill; Inflation Worries Stir

WASHINGTON – The productivity of American workers slowed to a standstill in the summer while wage pressures were rising at the fastest clip in more than two decades, a combination likely to raise inflation concerns at the Federal Reserve.

The Labor Department reported Thursday that productivity, the amount of output per hour of work, showed no change in the July-September quarter while labor costs rose by 3.8 percent. For the past year, labor costs are up by 5.3 percent, the fastest increase since 1982.

Click here to visit FOXBusiness.com's Economy Center.

In other economic news, the number of newly laid off workers filing claims for unemployment benefits unexpectedly shot up last week to the highest level in more than three months. A total of 327,000 fired employees filed benefit claims, up by 18,000 from the previous week.

The total number of jobless claims, which are adjusted for normal seasonal variations, was the highest since early July and raised concerns about whether the slowing economy is finally beginning to push companies to lay off workers.

The flat productivity reading in the third quarter was the poorest showing since a 0.1 percent decline in productivity in the final three months of last year. Over the past four quarters, productivity has risen by 1.3 percent, the weakest showing since a 1.1 percent rise in early 1997.

The 3.8 percent rise in the cost of labor per unit of output followed even bigger gains of 9 percent in the first quarter and 5.4 percent in the second quarter. Those increases pushed labor costs up by 5.3 percent for the year ending in September, the biggest gain since late 1982.

The Federal Reserve raised interest rates 17 consecutive times in an effort to slow the economy enough to bring inflation pressures under control. The Fed has left rates unchanged for three straight meetings, hoping that it has done enough to slow economic growth.

However, the significant slowing in productivity growth and the continued rise in wage pressures, if not reversed in coming quarters, could prompt the Fed to resume raising interest rates to fight inflation.

Click here to visit FOXBusiness.com's Economy Center.