Wednesday, November 07, 2007

With Productivity Up Sharply Fed Can Cut More

Productivity Rises, Easing Inflation Fears

WASHINGTON -- U.S. productivity jumped last quarter at its fastest pace in four years while labor costs fell, a welcome relief for Federal Reserve officials worried about the inflationary effect of rising energy and commodity prices.

Still, the productivity rebound may prove temporary if the economy slows as expected in the fourth quarter and in early 2008.

Nonfarm business productivity swelled at a 4.9% annualized rate between July and September, the Labor Department said Tuesday. That is more than double the 2.2% rate in the second quarter, which was revised down from a previous estimate of 2.6%. Productivity is defined as output per unit of labor.

The third quarter productivity gain was well above Wall Street expectations of a 3.4% rise. The increase reflects the recent mix of strong economic growth data with slower gains in payrolls.

Unit labor costs -- a key gauge of inflationary pressures -- fell 0.2% last quarter, the biggest drop since the second quarter of 2006. Economists had expected a 0.8% rise. Still, labor costs were up 4.3% from a year ago, suggesting some pressures linger.......


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