Productivity rose this summer in its biggest gain since last winter, a sign the economy's current modest growth will last, the Labor Department said Thursday.

Economists had expected third-quarter productivity, which rose at an annualized rate of 3.1 percent, to increase by 2.8 percent. Productivity was down in the first half of the year.

Employee pay grew in the July-to-September period at a slower pace than in either the second-quarter or the first quarter, the Labor Department said.

The slowing pace of compensation increases marks a positive development for profits, though not necessarily for job creation.

The bigger-than-expected drop in unit labor costs temporarily arrests the upward move in compensation, which is very positive for profit margins, Eric Green, chief market economist at TD Securities Inc., told Bloomberg. The reversal in labor costs suggests there is more room as opposed to less room for profit expansion and corporate profitability.

Meanwhile, weekly applications last week for unemployment benefits dropped 9,000 to a seasonally adjusted 397,000, the lowest level in five weeks -- only the third time since April applications came in under 400,000.