Productivity boosts Russell 2000

The Russell 2000 (NYSE: IWM) has jumped higher than the Dow following news of an unexpectedly robust increase in productivity.

At 12:49 p.m. ET, the small-cap index had added 5.01 points, or 0.71%, to 706.59. The Dow Jones Industrial Average (INDU) had climbed 54.30 points, or 0.44%, to 12,319.43.

Small caps are leading the rally that followed news that U.S. worker productivity grew more than expected during the fourth quarter as employers cut working hours.

The U.S. Labor Department reported before the start of trading that productivity increased at an annual rate of 1.8% during the final three months of 2007, higher than the 0.5% rate expected by economists.

The total number of hours worked decreased 1.5% during the fourth quarter after declining 0.3% during the third quarter.

Unit labor costs, which are a key measure of inflation, rose 1.6% after falling 1.9% in the third quarter. Economists had forecasted a rise of 3.8%. The lower-than-expected increase is good news for the U.S. Federal Reserve, which has recently shifted its focus from fighting inflation to stimulating economic growth.

Increases in labor costs must be matched by productivity increases in order to keep inflation in check.

Separately, the Mortgage Bankers Association announced before the opening that its measure of mortgage loan application volume rose 3% for the week ended Feb. 1, while the our week moving average is up 10.4%.

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