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US Q3 productivity revised up, wages slashed

[WASHINGTON] US nonfarm productivity grew a bit faster than initially thought in the third quarter, while sharp downward revisions to compensation pointed to muted wage inflation that should give the Federal Reserve room to keep interest rates low for a while.

The Labour Department said on Wednesday productivity expanded at a 2.3 per cent annual rate instead of the previously reported 2.0 per cent pace.

Economists polled by Reuters had expected productivity, which measures hourly output per worker, would be raised to a 2.4 per cent rate to reflect upward revisions to third-quarter gross domestic product.

The government last week raised third-quarter GDP growth to a 3.9 per cent pace from a 3.5 per cent rate.

The trend in productivity, however, remains relatively weak, despite the upward revision. Productivity rose 1.0 per cent compared to the third quarter of 2013.

Businesses have been hiring more workers to increase productivity, helping to put a dent in unemployment.

Compensation measures were revised sharply lower in line with downward revisions to income data published last week.

Unit labour costs, the price of labour for any given unit of production, fell at a 1.0 per cent rate in the third quarter. They had previously been reported to have increased at a 0.3 per cent pace.

Unit labour costs for the second quarter were also revised down to show them declining at a steeper 3.7 per cent rate instead of the previously reported 0.5 per cent pace.

That should ease fears that wage growth is rising a little bit faster than the Fed's expectations and cause the US central bank to wait longer to raise interest rates.

Wage growth is one of the key factors that will determine when the Fed will start raising its short-term interest rate, which it has kept near zero since December 2008.

Compensation per hour increased at a 1.3 per cent rate in the third quarter rather the 2.3 per cent pace reported last month.

Compared to the third quarter of last year, hourly compensation rose 2.2 per cent instead of the 3.3 per cent advance reported last month.

REUTERS