US Q3 productivity fastest in 3 years; jobless claims fall

WASHINGTON: US worker productivity increased at its fastest pace in three years in the third quarter but the trend remained moderate, suggesting that a recent acceleration in economic growth was unlikely to be sustained.
Other data on Thursday showed the number of people filing for unemployment benefits fell to a near 44-1/2-year low last week, offering further evidence that the labour market was tightening despite hurricane-related disruptions in September.
The surge in productivity last quarter held down growth in labour costs, indicating that inflation pressures could stay benign for a while. Still, jobs market strength bolsters the case for the Federal Reserve raising interest rates in December. The US central bank kept rates unchanged on Wednesday.
“While the data point to a solid economy, they also reinforce the view that growth is not likely to remain strong for an extended period without improved wage gains,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “Productivity is still growing too slowly.”
The Labour Department said nonfarm productivity, which measures hourly output per worker, rose at a 3.0 per cent annualised rate. That was the quickest pace since the third quarter of 2014 and followed an unrevised 1.5 per cent rate in the April-June
The rise outpaced economists’ expectations for a 2.4 per cent pace and was flagged in last week’s third-quarter gross domestic product report, which showed the economy growing at a 3.0 per cent rate during that period.
Productivity increased at a 1.5 per cent rate compared to the third quarter of 2016. Manufacturing productivity fell at a 5.0 per cent rate last quarter, the steepest rate of decline since the first quarter of 2009.
Overall, worker productivity has increased at an average annual rate of 1.2 per cent from 2007 to 2016, below its long-term rate of 2.1 per cent from 1947 to 2016. This, together with slowing population growth indicate the economy’s potential growth rate has declined.
The dollar fell against a basket of currencies on the Republican tax reform proposal, while prices for US Treasuries rose. US stocks were little changed.
Eight years into the recovery, annual GDP growth has not exceeded 3 per cent and economists do not expect the acceleration in productivity to be sustained.
In a second report on Thursday, the Labour Department said initial claims for state unemployment benefits decreased 5,000 to a seasonally adjusted 229,000 for the week ended October 28, the Labour Department said. That was not too far from 223,000, a 44-1/2-year low touched in mid-October.
Last week marked the 139th straight week that claims remained below the 300,000 threshold, which is associated with a strong labour market. That is the longest such stretch since 1970, when the labour market was smaller.
The labour market is near full employment, with the jobless rate at a more than 16-1/2-year low of 4.2 per cent.
The four-week moving average of initial claims, considered a better measure of labour market trends as it irons out week-to-week volatility, dropped 7,250 to 232,500 last week. That was the lowest reading since April 1973. — Reuters