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U.S. third-quarter productivity beats forecasts; pay increasing

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[November 06, 2014] WASHINGTON (Reuters) - Productivity at U.S. nonfarm businesses increased more than expected in the third quarter, keeping a lid on wage inflation.

The Labor Department said on Thursday productivity grew at a 2.0 percent annual rate after expanding at an upwardly revised 2.9 percent pace in the second quarter.

Economists polled by Reuters had forecast productivity, which measures hourly output per worker, advancing at a 1.5

percent rate after the second quarter's previously reported 2.3 percent expansion pace.

But the trend in productivity remains sluggish. It rose at only a 0.9 percent pace compared to the third quarter of 2013.

Over the past three years, it has never topped 1 percent on an annual basis.

Unit labor costs, the price of labor for any given unit of production, rose at a 0.3 percent rate in the third quarter,

after declining at a 0.5 percent pace.

But pay is accelerating, a good sign for the economy.

Compensation per hour increased at a 2.3 percent rate in the third quarter after a similar rise in the prior quarter.

Hourly compensation was up 3.3 percent from a year earlier, the fastest increase since the fourth quarter of 2012.

The Federal Reserve is watching wage growth as it ponders when to raise benchmark interest rates, which it has kept near

zero since December 2008. The U.S. central bank ended its bond buying program last month.

The increase in compensation adds to other signs of a pickup in wages. A broad wage measure, the employment cost index,

recorded its biggest gain since 2008 in the third quarter.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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