Business Productivity Booms

WASHINGTON – The productivity of U.S. businesses climbed at the fastest pace in 20 years in the third quarter as output soared while hours workers put in on the job barely budged, according to revised government figures recently release.

Nonfarm business productivity, or worker output per hour, rose at an upwardly revised 9.4-percent annual rate in the third quarter, the strongest surge since the second quarter of 1983, the Labor Department said.

The advance was a good bit above the previously reported 8.1-percent clip and slightly stronger than the 9-percent gain economists on Wall Street had expected.

The sharp productivity rise helped businesses keep costs of production low, a plus for profits. So-called unit labor costs plummeted at a revised 5.8-percent rate, the steepest plunge since the second quarter of 1983 and a slightly bigger fall than the 5.4 percent expected in financial markets.

Analysts said an upward productivity revision was baked in the cake after the government ratcheted up third-quarter growth last week to an annualized 8.2-percent jump from the 7.2-percent advance reported earlier.

The latest report, which showed output climbing at a 10.3-percent rate but hours worked up just 0.8 percent, offered confirmation the sizzling pace of growth, the strongest quarterly expansion in gross domestic product in nearly 20 years, primarily reflected the ability of businesses to squeeze more out of their existing workforce.

While many economists believe one of the most protracted job slumps since the Great Depression finally drew to a close in the third quarter, only a paltry 103,000 new positions were added in that period. October saw a gain of 126,000 nonfarm payrolls and economists expect an even bigger rise in November.

Most economists believe the third quarter's stellar productivity performance is unlikely to be sustained, although some think the trend rate of productivity, which accelerated to around a 3.5 percent annual rate in the mid-1990s, may have picked up further.

Over the last four quarters, productivity has risen 5 percent.

In the longer term, strong productivity growth will help boost standards of living, although in the short run it may prove a hurdle to strong hiring.

Source: Reuters