Productivity, which measures worker output per hour, rose at a 2.7% annual rate in the third quarter, the U.S. Labor Department reported today. However, the department said the rise came largely as employers cut hundreds of thousands of jobs in response to a slowing economy.

Productivity rose as businesses cut workers' hours at a 3.6% rate, the largest drop in hours since the first quarter of 1991 when the country was in the depths of its last recession. Output declined at a rate of 1%, the biggest decrease since the first quarter of 1993.

The government adjusted figures on workers' hours to capture the effect of the September 11 attacks, which had the effect of boosting productivity as workers produced a lot of goods despite a cutback in hours.

The third quarter's performance was stronger than the 2% productivity gain many analysts were expecting and marked the biggest increase since the second quarter of 2000, when productivity soared 6.3%.

The Labor Department reported that unit labor costs, a closely watched gauge of wage pressures, rose 1.8% in the third quarter, down from a 2.6% gain in the second quarter. That was lower than the 2.3% gain estimated by analysts and suggested workers were losing their bargaining power amid a weakening labor market.