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Productivity in the US non-farm-business sector grew at an annual rate of 9.5% in Q-3 Y 2009, the biggest quarterly gain in six years, the US Labor Department reported Thursday. The Q-3 reading for productivity, the amount of output per hour of work, was also better than the 6.4% gain that economists had estimated. Employers’ unit labor costs, or costs of wages and benefits for each unit of output, plunged at an annual rate of 5.2%. The US economy rose at a pace of 3.5% in Q-3 after four consecutive quarters of contraction, a strong signal that the worst recession since the Great Depression is over. Productivity is considered the Key ingredient needed for rising living standards because it allows companies to pay their workers more without having to raise the price of their products, which fuels inflation. Read more

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US inflation slowed to 50-yr low last year as industrial output fell for the first time since 2002, raising the specter of deflation. Consumer confidence is also at depressed levels suggesting that the economy could take longer to recover from the downturn that augurs to be the longest and perhaps deepest since World War II. The US Consumer Price Index dropped 0.7 percent in December for a 3rd straight monthly decline, capping a year in which prices advanced only 0.1 percent, the weakest 12 month reading since December 1954, according to the US Labor Department.

Weakening economic activity worldwide has depressed commodity prices, pulling headline inflation figures down sharply and the core US inflation, sans the volatile food and energy costs, is also slowing, increasing the risk of deflation. Deflation is a sustained decline in price levels, and is regarded as dangerous because it stifles economic growth.

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