WASHINGTON-U.S. productivity soared by the largest amount in 20 years last quarter, raising hopes that the economic recovery is taking hold and businesses will soon increase hiring.
Productivity increased at an annual rate of 9.4 percent in the July-to-September quarter, the best showing since the second quarter of 1983. The productivity figure was even stronger than the government's first estimate of an 8.1 percent productivity growth rate and represented an acceleration from the brisk 7 percent pace in the second quarter.
Improved productivity figures allow the economy to grow faster without triggering inflation. Companies can pay workers more without raising prices, which would eat up those wage gains. And productivity can bolster a company's profitability. As profits improve, companies may be more willing to boost capital investment and hiring-two crucial ingredients for the recovery to last.
The economy is estimated to be growing at a solid 4 percent rate in the current quarter. Although that would be a slowdown from the 8.2 percent pace of the third quarter, the fastest in nearly two decades. Companies' output in the third quarter surged at a 10.3 percent rate, the biggest increase since the third quarter of 1983, and more than two times the 4.6 percent pace in the second quarter. Workers' hours in the third quarter increased at a 0.8 percent pace, the most since the first quarter of 2000, and a turnaround from the 2.2 percent rate of decline in the second quarter.