US productivity at six year high

US business productivity in the third quarter grew at the fastest pace in six years and new claims for jobless aid fell to a 10-month low last week, indicating the decline in the labour market may be hitting bottom.

The Labor Department said that productivity surged at a 9.5% annual rate, the quickest pace since the third quarter of 2003, as companies squeezed more output from a smaller pool of labour to cut costs.

Analysts had forecast that productivity, which measures the hourly output per worker, rising at a 6.4% rate in the third quarter. Productivity grew at a 6.9% pace in the months from April to June.

In another report, the department said initial claims for state unemployment benefits dropped 20,000 to 512,000 last week, the lowest since early January. Analysts polled by Reuters had forecast new claims slipping to 523,000 last week from a previously reported 530,000.

Productivity in manufacturing rose at a record 13.6% rate in the third quarter. Total non-farm output rebounded, growing at a 4% rate in the July-September quarter after dropping 1.1% in the previous period.

Productivity has increased sharply over the past two quarters, largely driven by aggressive cost cutting by businesses. Analysts see little room for more cuts and believe that this, coupled with the economy's resumption of growth in the third quarter, may cause companies to start increasing payrolls.

The Federal Reserve last night expressed optimism an economic recovery was building and was concerned the process would be sluggish as household spending remained constrained by job losses, low income growth and tight credit conditions.

The US central bank also left its benchmark overnight lending rate unchanged near zero and pledged to keep it there for an extended period. The US economy grew at a 3.5% annual pace in the third quarter, probably ending the worst US recession since the Great Depression of the 1930s.