U.S. productivity shows 2.3 percent increase in third quarter

U.S. productivity grew at an annual rate of 2.3 percent in the July-September quarter, slower than the previous quarter but still an improvement over the weak annual gains of the past decade. Labor costs rose at a modest pace in the third quarter.

The third quarter gain in productivity was revised up slightly from an initial estimate a month ago of a 2.2 percent gain, the Labor Department said Thursday. It marks a more modest advance than the second quarter's 3 percent annual rate of increase. Labor costs were up at a 0.9 percent annual rate in the third quarter following a decline at a 2.8 percent rate in the second quarter.

Productivity, the amount of output per hour of work, has been weak throughout the current expansion.

It rose last year by just 1.1 percent. Over the past decade, productivity has hovered at an average annual rate of 1.3 percent, just about half the 2.1 percent gains in the seven decades starting in 1947. The period from 2000 to 2007 saw even stronger annual gains of 2.7 percent, a burst that was credited to efficiency improvements achieved with the introduction of high-tech computers and other devices to the workplace.

Finding a solution to the slowdown in productivity growth is one of the key economic challenges facing the country. Rising productivity is critical to boosting standards of living because productivity gains allow companies to pay workers more without having to increase the cost of their products, which can be inflationary.

The Trump administration will find it difficult to achieve its goal of sustained GDP growth of 3 percent or better each year without significant improvements in productivity. An economy's potential for growth is determined by an expansion in the labor force, which is determined largely by birth rates and immigration, as well as the growth in productivity.

The government reported last week that the economy's total output, as measured by the gross domestic product, rose at an annual rate of 3.5 percent in the third quarter, a strong reading but down from the second quarter's sizzling 4.2 percent GDP advance.

In a separate report, the Labor Department said that the number of Americans filing for unemployment benefits fell to 231,000 last week, a drop of 4,000 from the previous week. Benefit applications, a proxy for layoffs, have been at ultra-low levels for months, underlining the strength of the U.S. labor market.