U.S. worker productivity increased 1.9% in Q4 2007, above the consensus estimate, as businesses reduced employee hours to contain costs, the U.S. Labor Department announced Wednesday.

Analysts surveyed by Bloomberg News had expected productivity to increase 1.8% in Q4 2007. Productivity increased 6.9% in Q3 2007.

For 2007, productivity increased 1.8%, up from 1% in 2006. Productivity measures output per hour worked. Economists say rising productivity usually leads to increases in income, as businesses can increase salaries/wages without increasing their per unit costs.

Meanwhile, Q4 2007 unit labor costs, a statistic adjusted for increases in efficiency, were revised higher to 2.6% from the earlier 2.1%. Labor costs increased 3.1% in 2007.

During Q4 2007, hours worked fell 1.6%, the largest decline since Q1 2003, and the second consecutive quarterly drop.

Economic Analysis: In general, a decent Q4 2007 productivity report. The nation's workforce continues to become more-efficient, which is a good sign, given increasing business costs in other areas -- health care insurance, raw materials, commodities, energy and transportation costs, etc. In 2007, companies did an adequate job containing employee costs.

Producer prices rose just 0.1% in October, while the core rated registered no increase, the U.S. Department of Labor announced Wednesday, with both stats coming in below consensus expectations.

The consensus had called for a 0.3% rise in PPI and a 0.2% rise in core PPI.

The October 2007 statistics were aided by falling energy prices, which fell 0.8%, including a 3.1% drop in gasoline prices and a 2.5% drop in heating-oil prices, the Labor Department said.

"All-in-all, it's a pretty good PPI report," economist M. David Chandler told bloggingstocks. "Of course, the October statistics don't reflect the delayed pass-through of higher gasoline prices and heating oil prices, which will probably show up in the November, but that still doesn't blot-out the fact that overall PPI costs were mostly contained in October."

However, on a 12-month basis, PPI is up 6.1%, while core PPI is up 2.5%. Both statistics exceed most economists' ceiling for reasonable PPI inflation in a growing economy.

"We still have above-average PPI on a 12-month basis, and I don't doubt that the Federal Reserve is watching this, particularly the core PPI," Chandler said.