Source AP ©

Productivity rebounds strongly in U.S.

Worker productivity in the U.S. rebounded, growing at the fastest pace in nearly two years in the spring while wage pressures eased sharply, developments that should reduce inflation worries.

The Labor Department reported Thursday that productivity, the amount of output per hour of work, jumped to an annual growth rate of 2.6 percent in the April-June quarter, even better than the 1.8 percent increase that was originally reported.

Wage pressures, as measured by unit labor costs, slowed to an annual growth rate of 1.4 percent in the spring, slower than the initial estimate that labor costs were rising at a 2.1 percent rate.

Rising wages are good for workers, but if those gains are not accompanied by increased productivity, they can trigger unwanted inflation. If productivity is growing, it allows businesses to pay their workers more out of the increased output rather than by raising prices.

The increase in productivity and the reduction in labor costs were better than had been expected, raising hopes that the Federal Reserve will have the leeway to cut interest rates at its next meeting on Sept. 18.

Investors are hoping for such a move to insulate the economy from the steepest housing slump in 16 years and turbulence in financial markets stemming from rising mortgage defaults.

In other economic news, the number of newly laid off workers filing claims for unemployment benefits fell last week for the first time in seven weeks. The improvement was double what had been expected.

The Labor Department reported that jobless claims dropped to 318,000, down 19,000 from the previous week. A string of increases in jobless applications had raised concerns that the severe slump in housing was beginning to take its toll on the labor market.

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