Nov. 9, 2004--Worker productivity rose at a modest annual rate of 1.9% in the third quarter, according to government figures released Thursday.

Productivity -- as measured by an employee's output per hour -- grew by a seasonally adjusted 1.9% in the nonfarm business sector for the third quarter of 2004, down from 3.9% in the second quarter and the smallest increase recorded since the fourth quarter of 2002, according to the Labor Department. Output grew 4.1% in the quarter, while hours climbed 2.1%, reflecting a 1.7% gain in employment and a 0.4% increase in average weekly hours at work.

Hourly compensation increased at a 3.6% annual rate in the third quarter. When the rise in consumer prices is taken into account, real hourly compensation rose 1.7% from July to September, compared to 0.2% in the previous quarter. Unit labor costs rose at a rate of 1.6%, up 1% from last quarter and the largest rise dating back to the second quarter of 2001.

The manufacturing sector posted stronger gains of 4.3%, but these productivity increases fell well short of the 8.3% gain reported for the previous quarter. Output and hours in manufacturing, which includes about 13% of U.S. business sector employment, tend to vary more from quarter to quarter than do the aggregate business sectors, according to the Labor Department.