U.S. productivity growth came in strong at a 4% annual rate in the third quarter, due to constrained labour costs.

“Today’s report provides a very favourable economic environment. It suggests that compensation growth remains relatively mild and is being financed out of gains in productivity. As a result, there is no pressure on costs or retail prices. As well, the gains in compensation are providing the means for households to increase expenditure despite minimal job growth,” notes Bank of Montreal.

However, it adds that, “With productivity as high as it is, it is possibly providing a temporary disincentive for firms to take on new workers.” Eventually BMO expects that continued strong productivity growth, “will provide reason for firms to undertake further investment which in turn should help contribute to a better-rounded recovery in the economy.”

BMO Nesbitt Burns notes that, in a separate release this morning, U.S. initial jobless claims dropped 20,000 last week. However, the four-week average remained stable at just over 400,000 and continuing claims continued to rise.

“Companies continue to take the tough measures to return to profitability,” says BMO Nesbitt. “Faced with little pricing power, cutting costs and increasing efficiency are the right moves to repair margins.”

http://www.bls.gov/news.release/prod2.nr0.htm