WASHINGTON?U.S. worker productivity advanced at the best rate in two years during the third quarter, a sign an extended downward trend in the measure has stabilized.

Nonfarm business productivity, measured as the goods and services produced by American workers per hour, increased at a 3.1% seasonally adjusted annual rate in the third quarter, the Labor Department said Thursday. The change reflected a strong increase in output while hours worked increased only slightly.

Economists surveyed by The Wall Street Journal had forecast a 2.3% rise.

But compared with a year earlier, productivity was flat in the third quarter.

Prior to the July-through-September period, productivity had fallen for three straight quarters, the longest streak of negative readings since the 1970s. In the second quarter, productivity declined at a revised 0.2% rate, versus a prior estimate of down 0.6%.

Unit labor costs at nonfarm businesses rose at a 0.3% annual rate in the third quarter. Economists surveyed by the Journal had expected growth at a 1.2% pace. The small increase was a slowdown from the second quarter's revised 3.9% advance. Rising unit labor costs can erode profits and put pressure on firms to raise prices.

Thursday's report showed inflation-adjusted hourly compensation advanced at a 1.7% pace last quarter, a modest acceleration from the second quarter.

The improvement in productivity coincides with better overall economic growth. Gross domestic product advanced at a 2.9% annual rate in the third quarter, the Commerce Department said last week. That was a sharp acceleration after three weak quarters.

But much like overall growth, productivity gains have been sluggish during much of the expansion that began in mid-2009.

Productivity gains are a critical ingredient in determining the rate of growth for worker pay, consumer prices and the economy as a whole. The robust efficiency gains of the late 1990s and early 2000s, when U.S. firms adopted new advances in information technology, have faded and productivity growth has downshifted dramatically over the past decade.

Some economists, however, have argued that productivity may be mismeasured and the statistics aren't capturing the effects of innovations in medicine, technology and other areas.

Still, productivity is one factor Federal Reserve officials consider when determining if the economy is strong enough to withstand an increase in the central bank's benchmark interest rate.

At a meeting Wednesday, Fed officials held the interest rate steady, but hinted a December increase will be closely considered.

"The committee judges that the case for anincrease in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives," the Fed said after its two-day meeting.

Write to Eric Morath at eric.morath@wsj.com and Jeffrey Sparshott at jeffrey.sparshott@wsj.com

(END) Dow Jones Newswires

November 03, 2016 08:55 ET (12:55 GMT)

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