U.S. Labor Productivity Rises 3% in 3rd Quarter

American workers’ productivity continued to improve at a robust rate this summer despite economic problems overseas, government figures showed Thursday.

Productivity of nonfarm, nonsupervisory workers--measured as output per hour of work--grew at a 3% seasonally adjusted annual rate in the July-September quarter, even better than the 2.3% rate reported in an initial estimate last month, the Labor Department said.

That’s a welcome development for the nation’s long-term economic prospects. But in the short term, companies are staying lean and efficient with layoffs.

Economists said the productivity report shows that businesses, especially manufacturers, have been quick to economize to preserve profit margins threatened by the loss of export sales to Asia and other economically troubled parts of the world.

Many businesses can’t increase prices because of competition from exports. Nor can they cut back on wage increases as unemployment remains near a 28-year low.

What they can do is keep payrolls lean. That was illustrated by a separate Labor Department report showing the number of first-time applications for unemployment benefits rose by 12,000 to 313,000 last week.

“Manufacturers cut workers faster than output and as a consequence productivity surged,” said economist Joel Naroff of First Union Corp. in Philadelphia. “The ability to squeeze more out of the work force is the key to controlling labor costs.”

The number of jobless claims reported for last week was still below the level in early November. However, a four-week moving average, which smooths fluctuations in the volatile data series, rose by 250 to a seasonally adjusted 319,250.

In the third quarter, hours worked rose a lackluster 1.2% at nonfarm businesses. Compensation per hour rose at a strong 4.1% rate. But output increased at an even more robust 4.2% rate. That meant that unit labor costs, a key measure of underlying inflation pressure, rose at a tame 1.1% annual rate.

At factories, output was up only slightly, at a 0.7% rate, the smallest gain in three years. But hours worked plummeted at a 4.3% rate, so productivity surged 5.2%.

In a separate report, the National Assn. of Purchasing Management said its index of non-manufacturing business activity index held above 50 in November--signaling further expansion--though the gauge fell to 53 from 53.5 in October.

An index reading above 50 suggests that non-manufacturing business is expanding, while a reading below 50 means business is contracting. Unlike many other gauges of the economy’s performance, the index isn’t adjusted to account for seasonal variations.

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Business Productivity

Percentage change from previous quarter at annual rate, seasonally adjusted:

3rd quarter

(revised): 3%

Source: Labor Department