Productivity is lifting, but we shouldn't get carried away

National account figures show labour productivity - how much is produced for each hour of work - rose 0.9 per cent in the September quarter, the first such improvement in 18 months.

Productivity Commission deputy chair Alex Robson said labour productivity had halted its decline, but this was because of a drop in hours worked rather than an increase in how much was produced.

There was a 0.7 per cent fall in hours worked in the September quarter, according to the Australian Bureau of Statistics, the first such easing in two years.

This did not result in a drop in output, which increased by a minor 0.2 per cent over the same period.

Hours worked had been climbing since the pandemic because employers, concerned about the difficulty of recruiting workers, have been holding on to staff even as demand has slowed, according to economists.

"Now that growth in hours appears to have peaked without an accompanying decline in output, productivity has slightly recovered," Dr Robson said.

In its quarterly bulletin, the commission reported that productivity improved in 13 out of 19 industries, with particular gains in construction and professional services.

At the same time, output increased in most service sectors while tending to decline among goods producers like agriculture, utilities and mining.

The recovery in labour productivity follows a decade when it stagnated, undermining living standards and sustainable wage growth.

In the 10 years to 2020, labour productivity growth was its weakest in 60 years and has averaged just 1.2 per cent this century, according to Treasury.

Dr Robson said productivity became particularly weak in the latter stages of the pandemic when restrictions eased and cafes, restaurants, hotels and other low-productivity business re-opened.

Labour productivity was now returning to pre-COVID-19 levels, but that was "no cause for complacency, as that level came at the end of a decade of relatively weak productivity growth," he said.

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Treasurer Jim Chalmers has also voiced caution about the productivity improvement.

Dr Chalmers said that although the small lift in productivity was welcome, "we're not getting carried away by one quarter's numbers. This productivity challenge is an entrenched one. We don't pretend we can turn this ship around quickly".

The Productivity Commission has called for a comprehensive approach to boosting productivity, particularly in the services sector, including improving education and training, encouraging the adoption of digital technologies, setting price incentives for the net zero transition and improve the effectiveness of government spending in areas like health and social assistance.