INSTANT VIEW: Productivity growth slows in third quarter

NEW YORK (Reuters) - Non-farm business productivity grew at the slowest pace this year during the third quarter as output fell at the sharpest rate in seven years, a Labor Department report on Thursday showed.

The number of U.S. workers filing new claims for jobless benefits fell by 4,000 last week to 481,000, according to a Labor Department report on Thursday that still showed the job market under severe strain.

KEY POINTS:

PRODUCTIVITY: * Productivity increased at an annual rate of 1.1 percent, less than a third of the second quarter's 3.6 percent rate and down from 2.6 percent in the first quarter. That was still * Wall Street economists were expecting a 0.8 percent annual rate of growth. * Output fell at a 1.7 percent rate in the third quarter, the biggest decline since a 2.9 percent fall in the third quarter of 2001. * Unit labor costs, a gauge of inflation and profit pressures that the Federal Reserve monitors closely, jumped at a 3.6 percent annual rate in the third quarter, well ahead of forecasts for a 2.8 percent annual rate of increase.

JOBLESS CLAIMS: * The Labor department revised up its estimate for jobless claims in the prior week to 485,000 from a previously reported 479,000. * The jobless claims total last week was in line with Wall Street economists' forecasts for 480,000. * A four-week moving average of claims, which smoothes out weekly variations, was unchanged at 477,000 last week. * Continuing claims for unemployment benefits climbed by 122,000 in the week ended October 25 to 3.84 million, the highest level for continuing claims since February 1983.

COMMENTS:

CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO-MITSUBISHI UFJ, NEW YORK:

"The most important data is the most immediate, the weekly data, and that is on unemployment claims.

"It looks like the financial market crisis that hit us full force in September is starting to have a knock-on effect on Main Street and it's leading corporations to tighten their belts and start to cut staff. So it's a worrying sign.

"Productivity data at this stage is just slowing along with real output. It's no real surprise there. Our focus is primarily on jobs, jobs, jobs and the labor market outlook is not great."

SCOTT BROWN, CHIEF ECONOMIST, RAYMOND JAMES & ASSOCIATES, ST PETERSBURG, FLORIDA:

"Weekly initial jobless claims were a little bit worse than expected, with an upward revision to the previous week."

(For Friday's U.S. monthly non-farm payrolls report) "I have been looking for about 220,000 (decline in non-farm payroll jobs). I wouldn't be shocked to see between 250,000 and

300,000. Going with that theme, markets will be braced for a pretty bad number.

"My guess is with the jobs report (on Friday) bond markets will look to the data but also to the stock market's reaction to the data. The stock market had been ignoring much bad data in the last couple of weeks, but now seems to be more focused on the fundamentals."

ADAM YORK, ECONOMIC ANALYST, WACHOVIA SECURITIES, CHARLOTTE, NORTH CAROLINA:

JOBLESS CLAIMS: "This continues to indicate weakness in the labor market. We are looking for a 220,000 decline in the October payroll and there is downside risk to that number."

PRODUCTIVITY/UNIT LABOR COSTS: "Overall, inflation is not a real concern whether it's from the labor market or commodities. A weak economy will exert downward price pressure. It's not an obstacle for the Fed to cut rates if it wants to do so at this point."

MARKET REACTION: STOCKS: U.S. equity index futures extend losses slightly after data. BONDS: Treasury debt prices hold gains. DOLLAR: U.S. dollar holds gains versus euro.