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U.S. worker productivity rose 3% in the third quarter–the best showing in three years–while labour costs fell for a second straight quarter.

The increase in productivity in the July-September quarter was double the 1.5% gain in the second quarter, and both were up significantly from a scant 0.1% rise in the first three months of the year. Labor costs fell 0.2% after an even bigger 1.2% decline in the second quarter.

The third quarter figure for productivity was unchanged from an initial estimate while labour costs were initially estimated to have risen by 0.5%.

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Economists are hopeful that the upturn in productivity may be a sign that this key measure of living standards is improving after a prolonged period of weakness.

Economists believe finding ways to increase productivity, or the amount of output per hour of work, is the biggest challenge facing the economy right now. Without improvement, they say, the Trump administration will have difficulty reaching its goal of doubling economic growth in coming years.

The upturn in the past two quarters reflects the fact that overall output, as measured by the gross domestic product, accelerated sharply following a weak start to the year. GDP grew at an annual rate of 3.3% in the third quarter, the government reported last week, and that followed a 3.1% rise in the second quarter. It was the first back-to-back GDP gains of 3% or better in three years.

Productivity actually declined in 2016, dropping 0.1%. It was the first annual decline in 34 years and followed a string of weak annual performances since the economy emerged from recession in mid-2009.

Productivity has averaged annual gains of just 1.2% from 2007 through 2016, a sharp slowdown from average annual gains of 2.6% from 2000 to 2007. Those increases reflected a boost from the increased use of computers and the internet in the workplace.

Rising productivity allows employers to boost wages without triggering higher inflation.

Originally published on Advisor.ca
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