Non-farm business productivity increased 1.6 percent in the third quarter after edging up a revised 0.3 percent in the second quarter, the Labor Department reports.

Unit labor costs rose 2.8 percent in July, August and September after increasing by a revised 4.7 percent in April, May and June, according to the department's Bureau of Labor Statistics.A gauge of inflation tied to the data advanced 3 percent in the third quarter after jumping by a revised 4.8 percent in the second quarter of the year, the government also reported.

The total increase in non-farm productivity - defined as the output per hour of workers - was the largest since the third quarter of 1988, when it jumped 2.8 percent, a government spokesman said.

Output increased 1.5 percent in the third quarter after a revised uptick of 1.2 percent in the second quarter, while hours worked fell 0.1 percent after inching up a revised 0.9 percent in the previous three months.

"Quarterly output gains have been fairly steady during 1990, while hours have slowed," the Labor Department said. "The third-quarter drop in hours was the first since the second quarter of 1986 when hours fell 0.8 percent."

Hourly compensation increased 4.5 percent in the third quarter, but was down 1.8 percent when inflation was taken into account, the department said.

"During the second quarter, the comparable changes were 5 percent and 1.2 percent, respectively," the report said. "The third-quarter decline in real hourly compensation was the seventh in the past eight quarters."

Factory productivity, meanwhile, gained 5.6 percent in the third quarter after climbing a revised 3.1 percent in the second quarter, as the makers of "big ticket" durable goods increased output and slashed hours.

The figures in the Labor Department report are adjusted for critical seasonal factors.