WASHINGTON Worker productivity roared ahead at the fastest pace in four years in the summer while wage pressures dropped sharply.
The Labor Department reported Wednesday that productivity, the amount of output per hour of work, was up at an annual rate of 6.3 percent in the third quarter, the best showing since the summer of 2003, and far bigger than had been expected.
Meanwhile, wage pressures slowed with unit labor costs dropping at a rate of 2 percent in the third quarter, the biggest decline in four years.
The combination of stronger productivity growth and fewer wage pressures should ease concerns about inflation at the Federal Reserve and help clear the way for another cut in interest rates next week to guard against the threat the economy could tumble into a recession.
Rising wages are good for workers. But if higher wages are not accompanied by strong productivity gains, they raise concerns among Fed policymakers about inflation.
The 6.3 percent increase in productivity was a significant upward revision from an initial estimate a month ago of a 4.9 percent increase, reflecting the fact that total output was revised higher.
Investor hopes have been rising in recent days that the Fed will cut interest rates for the third time since September when officials hold their last meeting of the year next Tuesday.
Those hopes were bolstered by comments last week from Fed Chairman Ben Bernanke and Vice Chairman Donald Kohn. Both men noted that the economy is likely to slow considerably in the current quarter under the impact of such problems as renewed turbulence in financial markets.
While overall economic growth, as measured by the gross domestic product, roared ahead at a 4.9 percent rate in the third quarter, the fastest pace in four years, GDP is expected to slow to a barely discernible 1.5 percent or even less in the current quarter.
Growth at such a slow pace would increase the risks that the country could dip into a recession, felled by the multiple blows of a prolonged housing slump, a severe credit crunch, rising energy costs and faltering consumer confidence.
The Bush administration, seeking to limit the fallout from the housing bust, has been prodding the mortgage industry to freeze rates on a portion of the 2 million subprime mortgages that are due to reset to higher rates over the next two years.
The rate freeze program, which is expected to be announced on Thursday, would be offered to homeowners who have been able to keep current with their monthly payments at the lower introductory rates but are judged to be unable to meet the sharply higher payments when the rates reset.