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November 2, 2017 9:45 AM, EDT

Productivity Rises by Most in Three Years as Output Jumps

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Worker productivity in the U.S. rose in the third quarter by the most since 2014 as the world’s largest economy expanded at a solid pace, a Labor Department report showed Nov. 2 in Washington.

Highlights of Productivity for the Third Quarter

•Measure of nonfarm business employee output per hour increased at 3% annualized rate (estimated 2.6%) after 1.5% pace in previous three months.

•Unit labor costs rose at 0.5% annualized rate (estimated 0.4%) following 0.3% pace.

•Among manufacturers, productivity fell at 5% pace — biggest drop since 1Q 2009, when the economy was in recession — after rising 3.4% in the second quarter; other reports showed hurricanes Harvey and Irma affected factories and the energy sector in the third quarter.

Key Takeaways

The results are consistent with third-quarter figures last week that showed gross domestic product posted the strongest back-to- back quarters of growth since 2014.

While the recent pickup in productivity is encouraging, a sustained acceleration has remained a challenge during this expansion, holding back the pace of economic growth. One reason: businesses have been cautious in investing in efficiency- boosting technology. That’s starting to change, as recent data show corporate spending on equipment picking up this year.

The latest figure compares with a 1.2% average over the period spanning 2007 to 2016. Weak productivity helps explain why companies are reluctant to raise workers’ wages, even as profit margins have improved.

Other Details

•Productivity rose 1.5% from the third quarter of 2016; unit labor costs, which are adjusted for efficiency gains, were down 0.1% from a year earlier

•Adjusted for inflation, hourly earnings rose at a 1.5% rate, slowing from a 2.1% increase

•Output rose at a 3.8% rate following 3.9%

•Hours worked rose at a 0.8% pace after 2.4%

With assistance by Jordan Yadoo