Who Needs Workers Anyhow?

U.S. companies increased their output in the third quarter even as they slashed working hours, driving productivity up at a 9.5% annual rate in the quarter, the Labor Department estimated Thursday.

Unit labor costs - a key measure of inflation - dropped at a 5.2% annual rate in the quarter. Productivity is output divided by hours worked. Output rose 4% annualized, while hours worked plunged 5%. Real hourly compensation increased at a 0.2% annual rate.

With productivity high and real compensation low, companies captured the lion's share of the benefits of higher productivity in the form of profits. Inflationary pressures remained very low.

The huge increase in productivity explains why the U.S. economy could grow at a 3.5% annual rate in the third quarter even as jobs were being lost at a rapid pace.