U.S. productivity rose at 2.0% annual pace in Q3

U.S. workers' productivity increased more rapidly than expected in the third quarter as a solid jump in output offset a rise in hours worked.

Labor productivity, or output per hours worked, rose at a 2% annual rate. Economists expected a 1.1% increase, according to the median forecasts in Action Economics' survey. In the second quarter, productivity increased 2.9%.

Over the past year, productivity grew 0.9%, in line with modest increases since 2012.

Unit labor costs, a measure of wage growth, ticked up 0.3% at an annual rate after falling 0.1% in the second quarter. Economists expected a 0.8% rise. Over the past year, labor costs rose 2.4%.

"Without faster productivity growth, those higher wages will be mirrored by a pick-up in underlying price inflation," forcing the Federal Reserve to raise short-term interest rates sooner than expected next year, economist Paul Ashworth of Capital Economics wrote in a note to clients.

Productivity surged early in the recovery as employers hesitant to add staff squeezed more from existing workers, but it has increased more slowly the past couple of years as hiring picked up. Monthly job growth has averaged well over 200,000 this year.

Output, which largely reflects economic growth, also has increased modestly through the recovery.

The government said last week the economy grew solid 3.5% in the third quarter, though much of the increase was due to a sharp rise in exports and U.S. military spending.