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Productivity increases modestly, unit labor costs drop

WASHINGTON (Reuters) - Nonfarm productivity increased at a modest pace in the third quarter, giving little sign that businesses are poised to ramp up hiring significantly.

Productivity, which measures hourly output per worker, increased at a 1.9 percent annual rate, the Labor Department said on Thursday.

Many economists would read a drop in productivity as a sign that companies are closer to maxing out production with existing staff and would have to boost hiring.

But the third-quarter reading matched the revised reading for the prior three-month period.

Businesses emerged from the 2007-09 recession lean and are showing little urgency to increase hiring, relying on their existing workforce to meet production.

Economists had expected third-quarter productivity to rise at a 1.6 percent rate.

Output increased at a 3.2 percent rate in the third quarter.

During the country's sharp economic downturn, productivity grew rapidly as companies cut costs, particularly wage bills. Productivity growth slowed sharply in 2011 and fell in the first quarter of 2012, but has since snapped back to a 1.9 percent growth rate.

The report showed unit labor costs fell at a 0.1 percent rate in the third quarter, missing analysts' expectations of a 1 percent increase.

(Reporting by Jason Lange; Editing by Neil Stempleman)

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