US third-quarter productivity beats forecasts; pay increasing

[WASHINGTON] Productivity at US nonfarm businesses increased more than expected in the third quarter, keeping a lid on wage inflation.

The Labour Department said on Thursday productivity grew at a 2.0 per cent annual rate after expanding at an upwardly revised 2.9 per cent pace in the second quarter.

Economists polled by Reuters had forecast productivity, which measures hourly output per worker, advancing at a 1.5 per cent rate after the second quarter's previously reported 2.3 per cent expansion pace.

But the trend in productivity remains sluggish. It rose at only a 0.9 per cent pace compared to the third quarter of 2013. Over the past three years, it has never topped one per cent on an annual basis.

Unit labour costs, the price of labour for any given unit of production, rose at a 0.3 per cent rate in the third quarter, after declining at a 0.5 per cent pace.

But pay is accelerating, a good sign for the economy. Compensation per hour increased at a 2.3 per cent rate in the third quarter after a similar rise in the prior quarter.

Hourly compensation was up 3.3 per cent from a year earlier, the fastest increase since the fourth quarter of 2012.

The Federal Reserve is watching wage growth as it ponders when to raise benchmark interest rates, which it has kept near zero since December 2008. The US central bank ended its bond buying program last month.

The increase in compensation adds to other signs of a pickup in wages. A broad wage measure, the employment cost index, recorded its biggest gain since 2008 in the third quarter.

REUTERS