US productivity surges easing inflation pressures in economy

Worker productivity surged in the summer at the fastest pace in four years while wage pressures eased.

Photo: US productivity surges easing inflation pressures in economy

The Labor Department reported that productivity — the amount of output per hour of work — jumped at an annual rate of 4.9 percent in the July-September quarter. That was more than twice the 2.2 percent rise in the second quarter and was the fastest surge in worker efficiency since 2003.

At the same time, wage pressures eased. Unit labor costs dropped at an annual rate of 0.2 percent, the best showing in more than a year.

Both outcomes were far better than expected and should relieve some concerns that a surge in productivity that began in the mid-1990s was in danger of being reversed.

The slight drop in wage pressures was especially welcome after hefty increases over the past four quarters. Rising wages are good for workers. But if higher wages are not accompanied by strong productivity gains, they raise concerns among Fed policymakers about inflation.

The 0.2 percent decline in unit labor costs in the third quarter followed a 2.2 percent increase in the second quarter and jumps of 5.2 percent in the first quarter and 10.3 percent in the fourth quarter of last year.

Wall Street was not impressed with the big rise in productivity and the slowdown in wage pressures, focusing instead on worries about high oil prices and the weakness of the dollar against other currencies. The Dow Jones industrial average fell by 360.92 points, its second big drop in the past week, to close at 13,300.02.

Analysts said the improvement in productivity probably will not last.

Many economists predicted productivity will slow during the next two quarters as overall growth slows, but will start to rebound again in late 2008 and 2009 as the overall economy rebounds, the AP reports.

Productivity, a measure of how much an employee produces for each hour of work, rose at an annual rate of 4.9 percent in the third quarter, the most in four years, up from 2.2 percent in the previous three months, the Labor Department said today in Washington. Wage expenses dropped 0.2 percent.

"This is short-term good news for the Federal Reserve and should help alleviate some of their near-term concerns regarding inflation,'' said Drew Matus, a senior economist at Lehman Brothers Holdings Inc. in New York. At the same time, "we think it could prove short-lived given expectations for growth'' this quarter.

Lehman forecast productivity would climb 4 percent, compared with a median estimate of 3.2 percent among economists polled by Bloomberg News.

Economic growth will probably slow to an annual pace of 1.8 percent between October and December, according to the median prediction of analysts in Bloomberg News's last monthly survey. Gross domestic product expanded 3.9 percent in the third quarter, Bloomberg reports.

Source: agencies