Ahead of the Bell: Productivity, Labor Costs

Economists expect productivity posted another sizzling advance in the July-September period while labor pressures plunged, a combination that will bolster companies' profits but continue to squeeze workers whose incomes stagnated during the recession.

Economists surveyed by Thomson Reuters expect productivity rose at a 6.4 percent annual rate in the third quarter, nearly matching the 6.6 percent increase in the second quarter. That was the biggest quarterly gain in six years.

Unit labor costs likely dropped at an annual rate of 4 percent, after a 5.9 percent plunge in the second quarter.

The Labor Department is scheduled to release the report at 8:30 a.m. EST Thursday.

It's typical for productivity to surge at the end of a recession as businesses continue to aggressively cut costs even as output starts to rebound.

Productivity, the amount of output per hour of work, is the key ingredient to rising living standards. It allows companies to pay their workers higher wages with the increases financed by the increased output rather than higher costs for products.

Companies recently have boosted output while laying off workers in the face of slumping demand. Fewer workers making more goods translates into stronger productivity. The falling labor costs also reflect that many workers still fortunate enough to have jobs have seen their wages squeezed as companies struggle to bolster their bottom lines.

The overall economy, as measured by the gross domestic product, grew at an annual rate of 3.5 percent in the July-September quarter, the first increase in output after a record four straight declines that covered the longest recession since the 1930s.

While economists believe the recession has ended, the unemployment rate likely will keep rising until next summer. The jobless rate hit a 26-year high of 9.8 percent in September and economists predict it will edge up to 9.9 percent when the October number is released on Friday.