US productivity expected to show gain for July-September period

MarketsAssociated Press

The Labor Department releases a revised estimate of productivity for the July-September quarter. The report will be issued at 8:30 a.m. EDT Wednesday.

PRODUCTIVITY GAIN: The government initially reported that productivity grew at an annual rate of 2 percent in the July-September quarter and labor costs rose a slight 0.3 percent.

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REVISED ESTIMATES: Those estimates, made a month ago, will be revised to reflect the revisions to overall economic growth, as measured by the gross domestic product.

The government last week boosted its estimate for GDP growth to 3.9 percent at an annual rate in the third quarter, up from an initial estimate of 3.5 percent.

Economists at IHS Global Insight believe that GDP revision will result in a boost in productivity to 3 percent for the third quarter and that labor costs will actually decline at a 0.9 percent rate.

Productivity is the amount of output per hour of work.

Greater productivity is the key factor determining rising living standards. It enables companies to pay their workers more without having to increase prices.

In the five-and-a-half years since the recession, when millions of workers lost their jobs and found it difficult to secure new ones, labor costs have remained well contained.

Over the past year, labor costs have risen 2.4 percent, a modest increase that is below the long-run average of 2.8 percent in annual gains. That suggests that wages and salaries are not rising fast enough to spur inflation.

The Federal Reserve keeps a close watch on productivity and labor costs for any signs that inflation may be accelerating.

Over the past year, productivity has increased by a modest 0.9 percent, well below the long-run average of 2.2 percent.

Productivity surged in the two years after the recession. Companies cut jobs faster than their output was falling, driving productivity higher as fewer workers did more. Productivity grew 3.2 percent in 2009 and 3.3 percent in 2010.

But in the past three years, productivity growth has averaged just 1 percent per year as hiring has picked up. Economists at JPMorgan, however, are looking for a slight improvement in productivity growth next year, forecasting a gain of 1.5 percent in 2015.