US productivity fastest in 2 years, labor costs low

The productivity of US workers increased at a much faster pace than initially estimated in the third quarter, as businesses delayed hiring even as output grew, the government reported Wednesday. The Labor Department said productivity grew at an annual rate of 2.9 percent in the July-to-September quarter, the fastest pace since the third quarter of 2010. It previously estimated that productivity—hourly output per worker—rose at a 1.9 percent rate in the third quarter. The upward revision to productivity growth reflected an upward revision for third-quarter gross domestic product (GDP) growth to a 2.7 percent rate from the initial estimate of 2.0 percent. Specifically, productivity was revised higher because economic growth was faster, while hours worked were unchanged. Unit labor costs—a measure of the labor-related cost for any given unit of output—fell at a 1.9 percent annual rate in the third quarter, far more than the 0.1 percent decline initially estimated. Labor costs fell for a second consecutive quarter and were up only 0.1 percent from a year ago, highlighting the lack of wage-related inflation pressures in the economy. The report suggests companies are finding ways to squeeze more output from their existing workers. While that is a good sign for corporate profits, it is discouraging for people who want a job. Despite the third-quarter gain, the trend in productivity has been relatively weak. It has grown only 1.7 percent from a year ago, or half the average growth that companies saw in 2010 and 2009, shortly after many firms fired workers to cut costs during the Great Recession. Companies may ultimately need to hire more workers if they see only modest gains in productivity and more demand for their products. Economists expect productivity will slow for the rest of this year and through 2013. Higher productivity is typical during and after a recession.