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November 15, 2001
Productivity Rses, Labor Cost Growth Slows
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Quarter good news could help avoid Fed rate rise

Last Friday, just when the economists were grumbling about another possible interest rate hike by the Fed tomorrow, worker productivity galloped in to the rescue. U.S. workers' productivity rose sharply in the third quarter while labor cost growth slowed. The surprising strong numbers point out that the economy can continue in a high growth, flat out employment mode without the old inflation worries.

Productivity rose at an annual rate of 4.2 percent for July-September, according to the Labor Department. The Department's numbers measure output per hour of non-farm workers.

This is the fastest productivity rate in over a year, a considerable improvement over second quarter growth of just 0.6 percent

Improvements in technology are a major reason for the continued growth in productivity, which helps keep inflation at bay in a very hot economy.

According to a Reuters report, Bill Cheney, chief economist at John Hancock Financial Services, said: ``There has been a huge change in technology and the application of technology, which has increased the intensity of competition across the board. It has increased the speed with which things happen and forced everybody to shift up gears."

Meanwhile unit labor costs rose a scant 0.6% during the quarter, the lowest rate since late last year. Both sets of good government data suggest that the Fed will be unlikely to raise interest rates at their Tuesday meeting.

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