Today, the Labor Department revised up its estimate of second quarter productivity growth to 4.3 percent from its previous estimate of 2.2 percent. My forecast was 3.9 percent and the consensus forecast was 3.5 percent.

This is certainly good news for inflation and interest rate policy. Rapidly rising productivity growth coupled with easing oil prices will bring down headline inflation, as well as the closely watched core index of price increases, which excludes food and energy.

Simply, higher productivity permits businesses to better absorb increases in wages and benefit costs, and have something left over to help cover higher material costs. The Labor Department found that hourly unit labor costs actually fell 0.5 percent. Higher productivity should ease Federal Reserve fears about inflation and cause it to keep interest rates steady.

Rapidly rising productivity indicates U.S. industry continues to lead in the application of new and better methods for making and delivering goods and services, and continues to bang out great new products. The U.S. economy could perform very well with more supportive policies from Washington--getting the dollar exchange rate against the euro and Chinese yuan in line with prices; enlightened energy conservation, exploration and development strategies; and fixing the woes of banks and credit markets.

Friday, the Labor Department will report employment data for August. In July, the economy lost 51,000 jobs, and the consensus forecast is for another 75,000 jobs lost in August.  My forecast is for a 65,000 loss.