WASHINGTON -- The productivity of American workers rose in the July-September quarter at the fastest pace in two years, while labor costs slowed after a big jump in the spring.
Productivity increased in the third quarter at a 3.1 percent rate, the Labor Department reported Tuesday. That followed three quarterly declines and was the best showing since a 4.2 percent increase in the third quarter of 2014. Labor costs edged up at a 0.7 percent rate in the third quarter after a much faster 6.2 percent jump in the second quarter. The productivity figure was unchanged from an initial estimate a month ago while the 0.7 percent rise in unit labor costs was slightly higher than an initial estimate of a 0.3 percent gain.
The rebound in productivity was expected to be temporary.
"Productivity growth had a good quarter but the trend still looks weak," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics. O'Sullivan said the recent gains in unit labor costs add to the case that the Federal Reserve should raise interest rates at next week's meeting.
Economists are forecasting that productivity will return to the anemic gains seen over the past nine years. Since 2007, annual productivity increases have averaged just 1.3 percent. That is half of the 2.6 percent average gains turned in from 2000 through 2007 when the country was benefiting from the increased efficiency from greater integration of computers and the Internet into the workplace.
Productivity, the amount of output per hour of work, is the key factor that supports rising living standards. Rising productivity means increased output, which allows employers to increase wages without triggering higher inflation.
Economists say businesses need to start focusing more on raising the efficiency of their workforce. Analysts expect companies to put more emphasis on increasing productivity as the pool of available qualified workers shrinks.
A second economic report released Tuesday said orders to U.S. factories rose in October by the largest amount in 16 months.
Factory orders increased 2.7 percent in October, the best showing since a 2.9 percent rise in June 2015, the Commerce Department said Tuesday. The strength came from a 93.8 percent surge in the volatile category of commercial aircraft. A category that serves as a proxy for business investment edged up just 0.2 percent after a 1.5 percent drop in September.
U.S. manufacturers have struggled for much of this year, having to deal with a strong dollar, which makes their exports more expensive in overseas markets, and big cutbacks in investment spending by energy companies because of falling oil prices.
Orders for durable goods, items expected to last at least three years, rose 4.6 percent, slightly lower than an advance report that had put the gain at 4.8 percent. Orders for nondurable goods such as chemicals, food and paper were up 0.9 percent in October.
So far this year, orders for nondefense capital goods excluding aircraft -- the category used to track business investment -- are down 4 percent from the same period in 2015. This weakness in investment has held back overall growth this year.
Economists are forecasting that manufacturing may start seeing better days with energy prices now rising again.
The Institute for Supply Management reported that American factories expanded for the third-straight month in November as new orders and production grew at a faster pace.
Business on 12/07/2016