Gains in Productivity Continue in 3rd Quarter

The remarkably strong gains in economic efficiency that have allowed the U.S. economy to grow much more rapidly without significant inflation than most economists thought possible continued in the summer, the Labor Department reported Thursday.

Labor productivity--the amount of goods and services produced for each hour worked--rose at a 3.8% annual rate in the third quarter, despite a sharp slowing of economic growth.

Some analysts have maintained that the strong productivity gains of recent years would taper off once economic growth began to slow. But so far that hasn’t happened.

Quarterly changes in productivity are volatile, however. For instance, last quarter’s 3.8% rate was down from the 6.1% rate of the spring quarter, which was far above the 1.9% rate of the first quarter.

On the other hand, the gain in productivity over the 12 months ended in September was 5%, up sharply from the 2.6% average for 1998 and 1999’s 2.1%.

Meanwhile, labor compensation jumped at an unexpected 6.4% rate in the third quarter. The productivity gain offset about two-thirds of that increase, so that employers’ labor costs per unit of production increased at only a 2.5% rate.

But even with the July-September rise in unit labor costs, they’re up a scant 0.1% over the past year.

The Labor Department also said new claims for state unemployment benefits last week were unchanged from the week before at a seasonally adjusted 308,000, suggesting that the labor market remains tight.

Meanwhile, the Conference Board said its index of leading economic indicators, a key forecasting gauge, remained unchanged in September after dipping 0.1% in August.

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Associated Press was used in compiling this report.

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Business Productivity

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

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3rd quarter: +3.8%

Source: Labor Department