U.S. productivity growth rebounded during the fourth quarter as a sharp increase in output was accompanied by a modest increase in labour costs.

Nonfarm business sector productivity was up at a 3% rate between October and December, the U.S. Labor Department said Wednesday, versus a revised 0.1% decline in the third quarter. The third quarter was originally reported as a 0.2% gain.

Unit labour costs rose by just 1.7%, down from 3.2% in the third quarter. They were up 2.8% from the same quarter a year ago and up 3.2% on average for 2006 as a whole, the sharpest annual increase since 2000.

Productivity was up 2.1% on average for 2006 as a whole, its slowest annual growth pace since 1997, due largely to very weak second and third quarters last year.

Last quarter’s productivity results were well above Wall Street expectations. Economists had forecast a 2.1% gain.

Today’s report said non-farm business output grew 4.2% during the fourth quarter compared to the third quarter. Hours worked rose 1.2%.

Hourly compensation increased 4.8%. Real compensation, adjusted for inflation, increased 7.1%. Manufacturing productivity increased 2.2% last quarter.