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Friday, November 12, 1999 Published at 15:02 GMT

Business: The Economy

US dream scenario continues

The US economy continues to go from strength to strength

The productivity of workers in the US rose sharply in the third quarter of this year, keeping growth in labour costs in check.

The official figures, compiled by the US Labour Department, suggest benign inflationary pressures just days before the next monetary policy meeting at the Federal Reserve looks at the level of US interest rates.

Productivity, measuring the output per hour of workers outside the farm sector, rose at an annual rate of 4.2% in the quarter from July to September, the department said.

That was the fastest productivity rate since a 4.4% gain in the first quarter of last year and followed weak growth of just 0.6% in the second quarter of the year.

The figure was well above market expectations of 3%.

Rising productivity can help keep inflation in check as it allows firms to increase output without having to incur higher labour costs.

With productivity high, unit labour costs are only rising very slowly, increasing just 0.6% during the quarter, the lowest rate since a 0.5% rise in the fourth quarter of 1998.

Economists had expected a rise of 1.4%.

Labour costs jumped 4.2% in the second quarter.

John Shepperd, economist at Dresdner Kleinwort Benson, said the figures were "astounding".

"It's a difficult call for the Fed. How can they raise rates when unit wage costs are only increasing up 0.6% and inflation is close to 2%," he said.

Retail sales steady

There was also good news on the commercial front as latest figures showed no change in the level of retail sales in October compared with the previous month.

The figures were weaker than expected, with many economists expecting retail sales to rise 0.3%.

But overall, consumer spending is still strong, boosted by the "wealth effect" of the increased value of most people's stock holdings.

Over 50% of US households own stock, and the new figures sent the leading average on the NY stock market, the Dow Jones, spiralling upwards another 63 points in early trading.

The US economy has been experiencing its longest boom in post-war history, with unemployment at a 30 year low. The Federal Reserve is worried that the tight labour market could eventually lead to higher wages and inflation.

But the current figures suggest that danger is still some way off.

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