Worker productivity rises, labor costs fall

U.S. workers increased their productivity this summer by the largest amount in a year and half, and they cost their employers less. The trend is good for corporate profits but not necessarily for job growth. The Labor Department says productivity rose at an annual rate of 3.1% in the July-September quarter after two straight quarterly declines. Labor costs dropped at an annual rate of 2.4% in the third quarter, the first decline since late 2010. Productivity is the amount of output per hour of work. The big jump in productivity in the third quarter is largely due to the economy’s posting its best quarterly growth in a year, while hours worked changed little. Higher productivity is generally a good thing: It can raise standards of living by enabling companies to pay workers more without raising prices and increasing inflation. But unless companies see sustained demand, they are unlikely to hire. Worker productivity fell during the first six months of the year, while labor costs increased. Economists expect productivity to slow over the next couple of years while labor costs rise. Forecasters with the National Association for Business Economics predict that productivity growth will slow to 1% this year, compared to growth of 4.1% in 2010. However, analysts say the slowdown in productivity growth has played a role in the modest gains seen this year in employment.