Productivity Weaker Than Thought, Wages Slip

- The rebound in U.S. nonfarm productivity growth was not as strong as previously estimated in the third quarter, while wages declined for two straight quarters, supporting the Federal Reserve's views of moderate inflation pressures.

Productivity increased at a 2.3 percent annual rate, the Labor Department said on Wednesday, a downward revision to its previous estimate of 3.1 percent.

Economists polled by Reuters had forecast productivity, which measures hourly output per worker, being revised down to a 2.6 percent growth rate. The revision reflects a much slower gross domestic product growth pace during the July-September period.

Productivity fell at a 0.1 percent pace in the second quarter.

Compared to the third quarter of last year, productivity increased 0.9 percent instead of 1.1 percent.

The government last week cut its third-quarter GDP growth estimate to 2.0 percent from 2.5 percent.

Though productivity has slowed after growing rapidly as the economy emerged from the 2007-09 recession , businesses have maintained the bulk of the gains made during the recovery.

Businesses, estimated to be sitting on a cash pile of about $2 trillion, continue to hold the line on costs.

Unit labor costs declined at a 2.5 percent rate in the third quarter instead of 2.4 percent. In addition, unit labor costs in the second quarter were revised down to show them contracting at a 0.1 percent rate instead of rising at a 2.8 percent pace.

Economists had expected third-quarter unit labor costs would be revised to show a 2.2 percent rate decline.

Subdued wage growth supports the Feds contention of a low inflation environment, despite high food prices. This should give the U.S. central bank more room to tackle stubbornly high unemployment and spur economic growth.