WASHINGTON - The productivity of American workers rose in the third quarter at a slower pace than the prior three months, while labor costs accelerated more than expected, a government report showed Thursday.
Productivity, a measure of worker output for every hour on the job, rose at a 3.8% annual pace in the third quarter after a revised 6.1% second-quarter growth rate, the Labor Department said. Businesses reduced worker hours as output slowed in the third quarter.
Compensation per hour worked rose at the fastest pace since the first quarter 1992, Labor officials said. That could concern Federal Reserve policymakers, who have projected productivity gains continuing to offset labor costs.
"The jump in compensation costs is a major disappointment," said Mark Vitner, senior economist at First Union Corp. in Charlotte, N.C. The report suggests "as the economy slows inflation will likely increase and the Fed will likely be forced to keep policy on hold."
Unit labor costs, a gauge of wages per measure of output, rose at a 2.5% annual rate in the third quarter after falling at a revised 0.2% rate in the second. The third-quarter increase in labor costs was the largest since a 4.3% jump in the second quarter of last year.
Analysts had expected a 3% rise in productivity for the third quarter and a 1.5% increase in unit labor costs.
Productivity is a key reason the economy has been able to grow faster without causing inflation to accelerate. As companies invest in equipment to automate business processes, workers can boost output without working longer hours. That lets companies raise wages without raising prices.
Productivity at non-financial corporations, a measure watched closely by Fed Chairman Alan Greenspan, rose at a 5.4% pace in the second quarter, compared with a 2.9% annual pace in the first.
Total worker output grew at a 3% rate in the third quarter, up from a revised 6.5% rate in the second quarter. The number of hours worked declined at a 0.8% rate in the third quarter after a 0.4% rate in the second quarter.
The government measures productivity by measuring the gross domestic product of private businesses and dividing by the number of hours those businesses report their employees worked.