U.S. worker productivity grew faster than initially thought in the third quarter, putting more downward pressure on labor costs, a trend that if sustained could contribute to lower inflation.

Nonfarm productivity, which measures hourly output per worker, increased at a 5.2% annualized rate last quarter, the Labor Department's Bureau of Labor Statistics said on Wednesday. That was revised up from the previously reported 4.7% pace and was the quickest since the third quarter of 2020.

Economists polled by Reuters had forecast productivity growth being revised higher to 4.9% rate.

The upgrade was telegraphed last week by revisions to gross domestic product data, which showed the economy growing at a 5.2% rate in the July-September quarter, instead of the previously reported 4.9% pace.

Productivity grew at an unrevised 3.6% pace in the second quarter. Productivity expanded at a 2.4% pace from a year ago, revised up from the previously estimated 2.2% rate.

Unit labor costs - the price of labor per single unit of output - decreased at a 1.2% rate in the third quarter. They were initially estimated to have declined at a 0.8% pace. Unit labor costs increased at a 2.6% rate in the second quarter, revised down from the previously reported 3.2% pace.

They rose at a 1.6% rate from a year ago, instead of the 1.9% reported last month.

The moderate annual labor costs bode well for the Federal Reserve's fight to lower inflation to the Fed's 2% target.

Following a raft of data showing subsiding inflation and easing labor market conditions, financial markets believe the U.S. central bank could start cutting interest rates as soon as next March. Since March 2022, the central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.

Hourly compensation rose at an unrevised 3.9% pace last quarter. It increased at a downwardly revised 4.0% rate from a year ago. Annual compensation was previously reported to have risen at a 4.2% rate.