Slowing productivity growth may mean more hiring

WASHINGTON - U.S. productivity rose 1.9 percent in the third quarter as labor costs fell, marking the sixth increase in the past seven quarters, government data showed Thursday.

Yet, productivity growth has tapered off since the end of 2009, and if the usual patterns hold, companies might start to hire more workers soon. That would be welcome news for millions of jobless Americans.

"Since productivity has slowed, further gains in nonfarm payrolls are likely to be realized," chief economic strategist Dan Greenhaus of Miller Tabak & Co. said in an e-mail.

Productivity typically soars after a recession because companies cut their labor force more than they reduced their output of goods and services. As an economy recovers, companies tend to increase overtime until demand outstrips what remaining workers can produce. At that point, businesses start to hire again.

So far, however, there's little evidence that companies are ready to start adding jobs rapidly. The nation's unemployment rate remains stuck near 10 percent, and weekly jobless claims have been flat in 2010.

In the third quarter, real output grew at an annualized rate of 3.0 percent, while hours worked rose 1.1 percent, the Labor Department reported. Productivity is defined as real output divided by hours worked. In the U.S. manufacturing sector, productivity increased by 0.4 percent.

The unit cost of labor, meanwhile, dipped 0.1 percent in the third quarter as increased output more than offset slightly higher compensation costs.

- MarketWatch