Productivity Growth Revised Down to 1.8%

U.S. business productivity (search) grew more slowly in the third quarter than first thought, climbing at a revised 1.8 percent annual rate, a government report showed on Tuesday, while growth in unit labor costs was nudged up to a 1.8 percent pace.

Growth in non-farm business productivity, or worker output per hour, was the slowest since the fourth quarter of 2002, the Labor Department (search) said.

Wall Street had expected a rise to a 2.0 percent clip from 3.9 percent in the second quarter as worker efficiency moderated and U.S. firms boosted hiring to maintain output.

A preliminary report released last month had shown 1.9 percent productivity growth in the third quarter and a 1.6 percent rise in unit labor costs.

Higher unit labor costs also backs views that the Federal Reserve (search) will stick with a measured pace of rate increases and lift its benchmark funds rate a quarter percentage point to 2.25 percent at its next meeting on Dec. 14.

Hours worked grew at a rate of 2.4 percent in the third quarter, the fastest pace since third quarter of 1999 as companies ran operations for longer to maintain output. This had been initially reported as a 2.1 percent growth rate.

Productivity growth was also substantially lower compared with a year ago when it rose by 9.0 percent. But this is not necessarily bad news since it also reflects cyclical changes in company hiring and a welcome boost to job creation.

Officials had predicted productivity would moderate as companies exhaust ways of boosting output by making existing workers more efficient and instead lifted hiring. During the third quarter over 400,000 new U.S. jobs were created.