U.S. productivity surges, jobs to follow

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. business productivity grew at its fastest clip in six years in the third quarter and new claims for jobless aid fell to a 10-month low last week, suggesting the labour market may be starting to bottom out.

The Labour Department said on Thursday that productivity surged at a 9.5 percent annual rate, the quickest pace since the third quarter of 2003, as companies squeezed more output from a smaller pool of labour to hold the line on costs.

The Labour Department also reported that initial claims for state unemployment benefits dropped to 512,000 in the week ended October 31, the lowest level since early January. Markets had expected a decline to only 523,000, from the 530,000 reported in the prior week.

Some healing of the labour market is crucial to sustaining and strengthening the economy's recovery after its worst recession in 70 years, with employment key to underpinning consumer spending.

Analysts doubt that the rapid growth rate in productivity, which measures the hourly output per worker, can be sustained, which some analysts say means businesses may soon have to step up hiring to meet the demand for their goods and services.

"We expect the pace of efficiency gains will soon begin to fade," said Michelle Girard, a senior economist at RBS in Greenwich, Connecticut. "Having cut payrolls so dramatically during the last downturn, we believe that companies will be forced to add workers earlier in this recovery than was the case following the last two recessions."

U.S. stocks rallied on the data, driving up the three main indexes more than 1 percent higher in morning trade.

Financial markets had expected productivity to rise at a 6.4 percent rate. It grew at a 6.9 percent pace in the April-June period, when the economy was still contracting.