The productivity of the US workforce surged by an unexpectedly strong 4.2 per cent in the third quarter of the year, the US Labor Department reported, after a weak 0.6 per cent gain in the previous quarter.
It was a larger increase than the financial markets had been expecting, and they rose on the news. The yield on the benchmark 30-year US Treasury bond fell back sharply to 6.03 per cent. The Federal Reserve's chairman Alan Greenspan has indicated that the link between productivity, wages and employment is one of the key concerns in interest rate policy, and the lack of any evidence of inflation in the labour market means that the Fed is less likely to raise interest rates when it meets on Tuesday. The US central bank has already increased rates twice this year, and there is intense speculation about whether or not it will make that three times, reversing the rate cuts it made last year in the face of a weakening global economy.
Unit labour costs increased by a meagre 0.6 per cent, even though the US jobless rate is at its lowest for nearly 30 years and growth is still robust.
Retail sales were unchanged in October, the Commerce Department reported separately, as car sales fell, another indication that the economy is healthy without overheating.
The latest report also incorporated changes made to the US national accounting system which revise up the nation's long term productivity increase. The compound annual rate of growth for business output per hour between 1979-98 was 1.7 per cent, the report says, compared to 1.3 per cent before the revisions.
The figures indicate a steady growth in US productivity, which increased by 2 per cent in 1997, 2.8 per cent in 1998 and 2.9 per cent in the last four quarters while real compensation - wages plus benefits - has increased by only 1.7 per cent.