WASHINGTON (MarketWatch) — The productivity of U.S. businesses climbed 3.1% in the third quarter as workers produced more goods and services in nearly the same amount of time, the government reported.

The increase in productivity in the July-to-September period reverses two straight quarters of decline. Economists surveyed by MarketWatch had expected productivity to increase by 3.7% in the third quarter.

The quantity of goods and services produced, known as real output, grew at an annual rate of 3.8%. That was the fastest pace since the second quarter of 2010.

Hours worked, however, rose a much smaller 0.6%, according to Labor Department data released Thursday.

As a result, unit-labor costs fell 2.4%, the biggest drop since the first quarter of 2010. Unit labor costs had been forecast to decline 1.4%.

Unit labor costs reflect how much it costs a business to produce one unit of output, such as a ton of steel or a barrel of beer. In the past 12 months, unit labor costs have risen 1.2%.

The small increase in wages was eaten up by higher inflation, however. Adjusted for inflation, wages actually fell 2.4%.

Joel Naroff of Naroff Economic Advisors called the report a mix of good news and bad news for the economy.

“For firms, getting labor costs under control implies earnings are likely to improve,” he said. “For workers, declining inflation-adjusted compensation means their purchasing power is declining and their ability to spend is being reduced.”

Higher productivity is widely regarded as the key to a rising standard of living because it tends to lead to higher pay for workers and larger profits for companies. Yet sometimes productivity rises when companies buy more labor-saving devices or they reduce staff while maintaining the same level of production.

That might explain the increase in productivity in the third quarter and underscore why hiring in the U.S. remains weak. Companies may be trying to squeeze more production out of existing workers rather than pay to increase staff given uncertain demand for their goods and services.

In the second quarter, meanwhile, productivity was revised up to show a 0.1% decline compared to a previously stated 0.7% decrease.

In the past 12 months productivity has risen at a 1.1% rate, but it’s slowed considerably since the end of 2010.