Manufacturing is looking good

November 5, 2015 10:29 AM

U.S. nonfarm productivity unexpectedly rose in the third quarter as a decline in self-employed workers contributed to overall hours worked falling for the first time in six years, restraining labor-related production costs.

The Labor Department said on Thursday that productivity, which measures hourly output per worker, increased at a 1.6 % annual rate after increasing at an upwardly revised 3.5 % rate in the second quarter.

Manufacturing productivity increased at its fastest pace in four years, led by the durable goods sector.

Economists polled by Reuters had forecast productivity falling at a 0.2 % rate last quarter after expanding at a previously reported 3.3 % pace in the second quarter.

Despite the surprise rise in the third quarter, the trend in productivity remained weak. Productivity increased only 0.4 % compared to the third quarter of 2014.

Economists blame softer productivity on lack of investment, which they say has led to an unprecedented decline in capital intensity.

While weak productivity has boosted employment growth as companies hired more workers to increase output, economists say it has contributed to stagnant wages and lowered the economy's speed limit. Economists say persistently anemic productivity could continue to limit wage growth even as the labor market approaches full employment.

In the third quarter, hours worked declined at a 0.5 % rate, the first decline since the third quarter of 2009.

Unit labor costs, the price of labor per single unit of

output, increased at a 1.4 % rate in the third quarter.

They had dropped at revised 1.8 % rate in the second quarter, which was previously reported as a 1.4 % pace of decline. Unit labor costs rose 2.0 % compared to the third quarter of 2014.

Compensation per hour rose at 3.0 % rate in the third quarter after increasing at a 1.7 % rate in the second quarter. Compensation was up 2.4 % compared to the third quarter of 2014.

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