Non-farm productivity, or worker output per hour, grew at a 4.1 percent annual rate from July to September and second-quarter gains were revised higher to 2.1 percent, the Labor Department said in a report on Thursday.
Wall Street had expected productivity to rise at a 2.5 percent pace after a previously estimated 1.8 percent second-quarter advance.
The gain in productivity "reinforces confidence that the underlying sustainable rate of increase in productivity is solidly 2.5 percent or more and that has been the premise of the Fed's willingness to raise rates in only a measured, moderate way," said Pierre Ellis, senior economist, Decision Economics in New York.
Economists, which had forecast a 2 percent gain in unit labour costs, said the report could ease worries at the Federal Reserve about creeping inflation.
"Come the Fed meetings around April, May, June next year, this may have an impact," said Tim Mazanec, senior currency strategist at Investors Bank & Trust in Boston.
"If unit labour costs are not increasing as much as we initially expected, that would get the Fed to pause (rate hikes) sooner than expected," Mazanec said.
The Fed watches productivity data for signs of how companies cope with rising costs, including expensive energy. Rising productivity and low labour costs gives companies a chance to hold prices down.
Slowing compensation gains in the third quarter underpinned the weaker unit labour costs.
Compensation rose 3.6 percent in the July to September period, slowing from a 4 percent advance in the second quarter. After adjustment for inflation, hourly compensation declined 1.4 percent in the third quarter.
Hours worked held nearly steady, rising at a 0.1 percent annual rate in the third quarter.
In a separate report, the Labor Department said new claims for US unemployment benefits fell for a third week as the toll from hurricanes Katrina and Rita continued to wane.
First-time claims for state unemployment benefits fell to a seasonally adjusted 323,000 in the week ended October 29 from an upwardly revised 331,000 in the prior week.
Wall Street had expected claims to nudge up to 330,000 from an originally reported 328,000.
There were about 18,000 new jobless claims linked to Gulf Coast hurricanes Katrina and Rita last week, the Labor Department said, bringing the storms' cumulative unadjusted impact to 520,000 claims.
Hurricane Wilma in late October triggered another 1,400 claims in Florida last week.
The four-week moving average of claims, considered a clearer signal of the US labour market because it flattens weekly volatility, declined for a fourth straight week to 350,500 from an upwardly revised 367,500 the prior week.
The number of people continuing to seek benefits after receiving a week of assistance fell to 2.82 million in the week ended October 22, the latest period for which data is available.