US worker productivity grew 1.9 per cent over the summer as output rose; labour costs fall

WASHINGTON – U.S. workers increased their productivity from July through September at roughly the same modest pace as the previous three months. Steady gains in productivity could dissuade companies from ramping up hiring.

The Labor Department said Thursday that productivity increased at a 1.9 per cent annual rate in the third quarter, about the same as the 1.8 per cent rate in the previous quarter. The second quarter figure was lower than the 2.3 per cent rate previously estimated.

Productivity measures the amount of output per hour worked. Greater productivity raises living standards because it enables companies to pay workers more without spurring inflation. And it’s a good sign for corporate profits.

But more productive workers also show companies that they are getting steady gains from their existing labour forces and needn’t add more employees.

Labour costs fell in the third quarter, a sign that inflation will remain mild.

Productivity growth is flat over the past year. But that’s because the gains from the past six months have been offset by declines in previous six months.

Worker productivity is improving partly because economic growth has accelerated. The economy expanded at a 2.8 per cent annual rate in the third quarter, up from 2.5 per cent in the previous quarter. At the same time, hiring has been only modest.

Still, productivity growth has slowed in the past three years after jumping in the aftermath of the recession. It increased just 1.5 per cent in 2012 and 0.5 per cent in 2011. Those gains followed much healthier increases of 3.3 per cent in 2010 and 3.2 per cent in 2009.

Productivity rose faster after the recession because businesses boosted output after slashing their workforces during the downturn.

The Federal Reserve monitors productivity and labour costs for any signs that inflation could pick up. Mild inflation has allowed the Fed to keep short-term interest rates at record lows and to buy bonds to try to keep long-term rates down.