Productivity, the amount of output per hour of work, increased at an annual rate of 2.3 per cent in the third quarter while labour costs fell at a rate of 1 per cent, the Labor Department reported Wednesday.
In its first estimate, the government had put productivity growth at a slightly slower 2 per cent and said labour costs had risen a tiny 0.2 per cent. The strengthening of productivity growth combined with a faster drop in labour costs should reassure the Federal Reserve that there is little threat of unwanted inflation pressures harming economic growth any time soon.
Greater productivity is the key factor determining rising living standards. It enables companies to pay their workers more without having to increase prices.
The slightly faster productivity growth compared to an initial estimate one month ago reflected revisions the government made to the gross domestic product, the economy's total output of goods and services.
Last week, the government revised GDP for the third quarter up from its first estimate of 3.5 per cent to a stronger 3.9 per cent. Greater growth in output translated into stronger growth in productivity and lower labour pressures.
In the five-and-a-half years since the recession, when millions of workers lost their jobs and found it difficult to secure new ones, labour costs have remained well contained.
Over the past year, labour costs have risen 1.2 per cent, a modest increase that is well below the long-run average of 2.8 per cent in annual gains. That suggests that wages and salaries are not rising fast enough to spur inflation.
The Federal Reserve keeps a close watch on productivity and labour costs for any signs that inflation may be accelerating.
Productivity over the past year has increased by a modest 1 per cent, well below the long-run average of 2.2 per cent.
In the two years after the recession, productivity surged. Companies cut jobs faster than their output was falling, driving productivity higher as fewer workers did more. Productivity grew 3.2 per cent in 2009 and 3.3 per cent in 2010.
But in the past three years, productivity growth has averaged just 1 per cent per year as hiring has picked up. Economists at JPMorgan, however, are looking for a slight improvement in productivity growth next year, forecasting a gain of 1.5 per cent in 2015.