WASHINGTON -- U.S. worker productivity accelerated in the third quarter, the government reported yesterday.
The jump offset an increase in labor costs and gave Federal Reserve policy-makers room to cut interest rates again if they see a need to give financial markets a boost, analysts said.
Productivity, which measures the time and effort needed to produce goods and services, rose at a 2.3 percent annual rate from July through September, after increasing at a 0.3 percent rate during the second quarter, Labor Department figures showed.
That compares with an average gain of 1.8 percent over the past year and just over 1 percent for the past two decades.
Unit labor costs -- a gauge that takes into account changes in worker compensation and productivity -- rose at a 1.7 percent annual rate in the third quarter, less than half the second quarter's 3.7 percent rate.
Those signs of rising efficiency bode well for corporate profits and the continuation of a U.S. expansion now in its eighth year.
And they mean that the Fed"doesn't have to be worried about wage pressures or inflation pressures when considering cutting interest rates," said Greg Jones, chief economist at Briefing.com in Jackson, Wyo.
Twice since the end of September, Fed policy-makers reduced the overnight bank lending rate by a quarter of a percentage point -- the most recent cut, to 5.00 percent, coming Oct. 15. The Fed's policy-setting Open Market Committee next meets Tuesday.
The Treasury's benchmark 30-year bond was little changed to yield 5.29 percent yesterday. The Dow Jones industrial average fell 33.98 points, or 0.38 percent, to close at 8,863.98.
Crucial to businesses
Gains in productivity are crucial to businesses if they want to absorb rising labor costs and hold down the prices they charge to stay competitive. And the latest statistics suggest that "we can get another 1 percentage point of economic growth without inflation," Jones said.
Another report yesterday underscored that theme. Wholesale inventories registered their largest gain in seven months in September as stockpiles of farm products such as grains and soybeans expanded to their highest level in almost a year.
Wholesale inventories rose 1.2 percent to $283.914 billion in September after rising a revised 1.1 percent in August, the Commerce Department said. Those gains are larger than first estimated, and that could push up estimates of third-quarter economic growth.
Two weeks ago, the government estimated that the economy expanded at a 3.3 percent annual rate during the third quarter.
The third-quarter rise in productivity was not entirely a surprise, given the pace at which the economy grew. Though the quarter's 3.3 percent growth rate was slower than the 3.7 percent pace posted during the first half of the year, it was still more growth than most economists had expected.
The implicit price deflator -- a measure of inflation tied to the productivity report -- rose at a 0.6 percent rate in the third quarter after increasing at a 0.2 percent rate during the second quarter.
Wages up 2.2%
Hourly wages adjusted for inflation, meanwhile, rose at a 2.2 percent annual rate after increasing in the second quarter at a 2.0 percent rate.
Total worker output rose at a 3.5 percent rate in the third quarter after increasing at a 1.7 percent rate in the second quarter. The number of hours worked rose at a 1.2 percent rate after increasing at a 1.5 percent rate.
And, while manufacturing output declined in the third quarter for the first time since the 1990-1991 recession, factory productivity picked up, rising at a 3.5 percent rate, compared with a 2.3 percent increase in the previous quarter.
Pub Date: 11/11/98