Productivity up less than forecast

NEW YORK (CNNMoney.com) -- Productivity rose less than hoped in the third quarter, according to a revision in the government's reading on that important check on inflationary pressures.

The Labor Department reported that productivity was up 0.2 percent in the quarter. That's better than the initial estimate, which said there was no improvement in the period. But economists surveyed by Briefing.com had been looking for a 0.5 percent rise.

The report estimated that unit labor cost was up 2.3 percent from the second quarter. That's down from the 3.8 percent jump in the original estimate. The downward revision in unit labor cost helped allay concerns about the weaker-than-forecast productivity gain.

"Unit labor cost and productivity are one of the things people were concerned about a little more than a month ago," Rick Klingman, the head trader on the U.S. Treasury desk at ABN Amro, told Reuters. "Now we've seen, after the GDP revision and now this, that the labor cost picture isn't nearly as scary as we thought."

Some of the economists said that if the unit labor cost had stayed high, it could have raised pressure on the Federal Reserve to consider a rate hike or at least keep rates unchanged. This report opens the door for the Fed to consider the rate cut that many in the markets are hoping for early next year in order to spur the economy.

"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," Christopher Low, chief economist for FTN Financial, told Reuters. "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."

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