US productivity surges

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Washington: US business productivity grew at its fastest clip in six years in the third quarter and new claims for jobless aid fell to a 10-month low last week, suggesting the labour market may be starting to bottom out.

The Labour Department said on Thursday that productivity surged at a 9.5 per cent annual rate, the quickest pace since the third quarter of 2003, as companies squeezed more output from a smaller pool of labour to hold the line on costs.

The Labour Department also reported that initial claims for state unemployment benefits dropped to 512,000 in the week ended October 31, the lowest level since early January. Markets had expected a decline to only 523,000, from the 530,000 reported in the prior week.

Some healing of the labour market is crucial to sustaining and strengthening the economy's recovery after its worst recession in 70 years, with employment key to underpinning consumer spending.

Analysts doubt that the rapid growth rate in productivity, which measures the hourly output per worker, can be sustained, which some analysts say means businesses may soon have to step up hiring to meet the demand for their goods and services.

"We expect the pace of efficiency gains will soon begin to fade," said Michelle Girard, a senior economist at RBS in Greenwich, Connecticut. "Having cut payrolls so dramatically during the last downturn, we believe that companies will be forced to add workers earlier in this recovery than was the case following the last two recessions."

US stocks rallied on the reports, with the productivity data viewed as good news for company earnings. The blue chip Dow Jones industrial average gained more than 2 per cent and closed above the 10,000 threshold for the first time in about two weeks.

Financial markets had expected productivity to rise at a 6.4 per cent rate. It grew at a 6.9 per cent pace in the April-June period, when the economy was still contracting.

The US Federal Reserve on Wednesday held overnight interest rates close to zero percent and said it would keep them extraordinarily low as long as excess economic slack and a lack of inflation warning signs prevailed.

The US economy grew in the third quarter for the first time in more than a year, driven largely by government stimulus. The strong productivity report suggested there was little need to worry about inflation at this juncture.