US worker productivity rises at modest pace

The Labor Department said Thursday that productivity increased at a 1.9 percent annual rate in the third quarter, about the same as the 1.8 percent rate in the previous quarter. The second quarter figure was lower than the 2.3 percent rate previously estimated.

Productivity measures the amount of output per hour worked. Greater productivity raises living standards because it enables companies to pay workers more without spurring inflation. And it's a good sign for corporate profits.

But more productive workers also show companies that they are getting steady gains from their existing labor forces and needn't add more employees.

Labor costs fell in the third quarter, a sign that inflation will remain mild.

Productivity growth is flat over the past year. But that's because the gains from the past six months have been offset by declines in previous six months.

Worker productivity is improving partly because economic growth has accelerated. The economy expanded at a 2.8 percent annual rate in the third quarter, up from 2.5 percent in the previous quarter. At the same time, hiring has been only modest.

Still, productivity growth has slowed in the past three years after jumping in the aftermath of the recession. It increased just 1.5 percent in 2012 and 0.5 percent in 2011. Those gains followed much healthier increases of 3.3 percent in 2010 and 3.2 percent in 2009.

Productivity rose faster after the recession because businesses boosted output after slashing their workforces during the downturn.

The Federal Reserve monitors productivity and labor costs for any signs that inflation could pick up. Mild inflation has allowed the Fed to keep short-term interest rates at record lows and to buy bonds to try to keep long-term rates down.