US business productivity surged in the third quarter, and slimmer compensation gains helped shrink labour costs, a government report showed today.
The Labor Department said growth in non-farm productivity, or worker output per hour, grew at a 4.1 per cent annual rate from July to September after an upwardly revised 2.1 per cent second-quarter gain.
Wall Street had expected productivity to increase at a 2.5 per cent pace following a previously estimated 1.8 per cent second-quarter advance.
Unit labour costs - a key profit pressure gauge - declined at an annual rate of 0.5 per cent - which could ease worries at the Federal Reserve about inflation expectations. Analysts had forecast a much stronger 2 per cent gain in unit labour costs.
Slower compensation gains in the third quarter helped keep costs low. Compensation rose 3.6 per cent, slowing from a 4 per cent advance in the second quarter.
After adjustment for inflation, hourly compensation declined 1.4 per cent in the third quarter. Hours worked held nearly steady, rising at a 0.1 per cent annual rate in the third quarter.
Advances in unit labour costs focus attention on inflation as the economy expands and are normally watched closely by the Fed. Productivity gains affect how companies absorb rising costs such as energy, and rising productivity allows companies to hold prices down.