US productivity likely slowed in third quarter after big jump in second quarter

Economic IndicatorsAssociated Press

The Labor Department reports its first estimate for productivity in the third quarter. The report will be released at 8:30 a.m. EST Thursday.

PRODUCTIVITY UP: The expectation is that productivity growth slowed to an annual rate of increase of 1.1 percent in the July-September quarter, according to a survey of economists by data firm FactSet. The expectation is that labor costs rose 0.8 percent in the third quarter.

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

The overall economy, as measured by the gross domestic product, grew at an annual rate of 3.5 percent in the third quarter, a solid performance that followed a 4.6 percent surge in the second quarter.

The GDP is the economy's total output of goods and services. Since output growth slowed in the third quarter, productivity, which is output per hour of work, was expected to slow as well.

Over the past year, labor costs have risen very modestly, well below the long-run average of 2.8 percent 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 below the long-run average of 2.2 percent.

Productivity surged in 2009 and 2010 in the aftermath of 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 0.7 percent per year as hiring has picked up. Economists are uncertain whether this is just a temporary slowdown or a new normal for the economy.