Business Productivity Up Strongly in Quarter

Business productivity rose at an annual rate of 2.1% in the third quarter, the best showing of the year, the government reported Monday.

Output rose at an annual rate of 3.9%, while hours worked rose 1.8% compared to the second quarter, the Labor Department’s Bureau of Labor Statistics said. The figures exclude farm activity.

The third-quarter productivity figures, revised upward from preliminary data a month ago, follow a decline in productivity of 3.1% in the first quarter and a small rise of 1.2% from April to June.

Analysts attributed the poor showing in the first half of the year to sluggish economic growth, and they said the latest figures bode well for holding down inflation. Unit labor costs were up a moderate 1.6%, and, in the manufacturing sector, labor costs declined 0.7%.

Also in manufacturing, productivity increased at a 3.7% annual rate from July to September. Output increased 3.3% while hours worked fell 0.3%. The increase in output was the strongest in a year. The decline in payroll hours represented a drop in employment and an increase in the length of the manufacturing workweek.

“Manufacturing continues to cut back and grow leaner, and that’s very positive for inflation and for the outlook for corporate profits,” said Allen Sinai, chief economist at Shearson Lehman Bros.

By historical standards, the improvement in productivity since the trough of the 1981-82 recession has been disappointing. In the 1950s and 1960s, productivity at this stage of economic recoveries generally was growing at better than a 4% annual rate. Productivity last year rose 2.7%.

Recent performance has been hurt by a sluggish economy, which grew at a 1.1% annual rate in the first six months of the year. Growth also was slow in the third quarter of last year, up just 1.6%.

Recent signs of more rapid economic expansion--a 3.3% increase in third-quarter growth--suggest that productivity will move up closer to the rates of past economic recoveries, Sinai and several other analysts said.

Productivity is the measure of output per hour worked, and output is expected to pick up along with growth in the overall economy.