Productivity Gain Strong in Third Quarter

November 7, 2002 ( - The US economy may still be struggling, but it boasts one decidedly bright spot - an annual productivity rate that grew at a brisk 4% during the third quarter, the strongest increase since early 2002.

The third quarter increase represented a turnaround for the productivity measure from the sluggish 1.7% hike during the April to June period, according to data from the US Department of Labor (DoL).

Defined as the amount of output per hour of work, productivity gains are widely regarded as a way to help dampen inflation pressures – a factor closely monitored by the Federal Reserve in its monetary policy decisions. The Fed aggressively cut interest rates on Wednesday for the first time in 2002, citing the economy’s productivity performance.

The 4% third-quarter increase slightly lagged the 4.2% pace many analysts were forecasting, but it still represented the best performance since the government reported a red hot 8.6% growth rate in the January to March period this year.

The DoL also reported that hourly compensation increased at an annual 5.2% rate during the third quarter. Revised results show that hourly compensation increased 4.2% in the second quarter and 3.0% in the first quarter of 2002 (seasonally adjusted annual rates).

This measure includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Real hourly compensation, which takes into account changes in consumer prices, increased 3.2% in the third quarter of 2002.