Productivity in the US non-farm business sector increased to a 1.1% annual rate over the last three months, according to the Bureau of Labor Statistics. This number is a positive, since economists had forecast a much smaller 0.3% increase, but it is probably due to the fact that U.S. firms have cut back their employees’ working hours, keeping productivity growth rising faster than expected. Hours worked dropped 2.7% in the 3rd quarter, the fastest rate drop in six years.

Productivity, or output divided by hours worked, increases profit margins and real wages, since more is being produced with less. This, in turn, becomes a key deterrent of inflation and promotes a higher standard of living.

For the year, productivity increased 2.0%, compared with a average annual rate increase of 2.5% from 2000-2007.

Unit labor costs, a key measure of inflation, came in at 3.6% annualized rate for the quarter. Economists forecasted a number closer to 4.2%. In the last year, unit labor costs have increased 2.3%.

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