Washington, DC, November 2, 2006--Labor costs rose as worker productivity unexpectedly stalled in the third quarter, representing a risk to Federal Reserve forecasts that inflation will subside.
Productivity was unchanged after a 1.2 percent gain in the second quarter that was weaker than previously estimated, the Labor Department said today in Washington. Labor costs rose at a 3.8 percent pace and were up 5.3 percent in the 12 months though September, the biggest gain since 1982.
The figures may not be welcomed by Fed policy makers, who last week said inflation is ``likely to moderate over time.'' Smaller gains in efficiency and rising labor costs may prompt companies to raise prices to protect profits, casting doubt on the central bank's view.
Economists expected productivity to rise at 1 percent annual rate for the third quarter, according to the median of 60 forecasts in a Bloomberg News survey. Unit labor costs were projected to rise at a 3.4 percent pace.
Compensation for each hour worked rose to an annual rate of 3.7 percent in the third quarter, compared with a 6.6 percent increase the prior quarter.
Productivity stalled because a 1.6 percent gain in hours worked at an annual pace equaled the increase in economic growth.
Among manufacturers, productivity rose at a 5.9 percent pace after rising 2.7 percent in the second quarter. Productivity at non-financial corporations, a measure watched by the Federal Reserve, rose at a 0.2 percent rate in the second quarter. Those figures are released with a one-quarter lag.
