WASHINGTON ( Reuters) - U.S. worker productivity rose by a weaker-than-expected 0.2 percent in the third quarter, but unit labor costs grew less than initially thought in a sign of moderating inflation pressure, government data showed on Tuesday.þþThe data gave a brief lift to U.S. government bond prices and the dollar weakened, as dealers bet the data would ease the central bank's inflation concerns and make rate cuts next year more likely.þþ``The bad news is that productivity growth is smaller than expected, but the good news is that unit labor costs were revised lower than expected,'' said Christopher Low, chief economist at FTN Financial in New York.þþ``It's important that the Fed is well aware that the economy is slowing, but they need to know that the slowdown is taking pressure off inflation. Hopefully this is what they will take from this report,'' he said.þþNonfarm business productivity was forecast by analysts polled by Reuters to rise at a 0.4 percent annual rate. While it fell short of that mark, it was revised up from the flat reading initially reported by the Labor Department.þþProductivity grew just 1.4 percent from the same quarter last year, the weakest year-on-year performance since the second quarter of 1997, when it expanded 1.3 percent.þþCompensation per hour increased 2.6 percent, versus a 3.7 percent rise initially reported in the third quarter. The milder compensation gain combined with the upward revision in productivity to restrain unit labor cost growth to 2.3 percent, an increase well under forecasts for a 3.3 percent rise and the 3.8 percent gain first reported.þþThe Labor Department also announced it had revised down the year-on-year growth in unit labor costs to 2.9 percent in the third quarter from 5.3 percent, as it revised the second quarter's gain in unit labor costs down sharply. þþRATE HOPESþþThis news will be welcomed by the U.S. central bank as unit labor costs are seen as a gauge of inflation and profit pressures that interest rate policy-makers closely watch.þþFed officials worry that mounting labor costs may hinder a decline in inflation from levels they have said are too high, despite a slowdown in economic growth.þþFed policy-makers next meet on December 12 to review interest rates and investors think they will signal no change. But many also think will have to start cutting rates next year, in the face of a weakening economy.þþ``We're not in the camp that the Fed is going to ease but it definitely bolsters those who are really worried about growth,'' said Rick Klingman, head trader on the U.S. treasury desk at ABN AMRO in New York.''þþ``One of the impediments of the Fed to actually reversing course was the labor cost picture. It's definitely a bullish number (for bonds),'' he said.þþThe Fed in August halted a two-year campaign of lifting borrowing costs in gradual quarter percentage point steps and has since kept its overnight fed funds rate steady at 5.25 percent, while warning that risks of higher inflation remain.þþSeparately, employment consulting firm Challenger, Gray & Christmas Inc. said on Tuesday planned U.S. layoffs rose 11 percent in November to 76,773, led by job cuts in the automotive industry.þþIn another report, the International Council of Shopping Centers and UBS Securities said U.S. chain stores sales fell 2.6 percent last week but were up 3.1 percent from a year ago.þþWhile the economy appears to have downshifted further after a third quarter in which it expanded at a lackluster 2.2 percent annual clip, a survey of small- and mid-sized business executives found they have grown more upbeat in recent months.þþCEO trade group Vistage International said its CEO confidence index rose to 93.0 in the fourth quarter from a three-year low of 89.3 in the third quarter.þþ
Source: NY Times
