Construction spending rose 0.5 percent in October for its sharpest increase since a 1.1 percent rise from May to June, the Commerce Department said yesterday. September's increase had been 0.4 percent.

Growth in residential building offset a large decline in construction of shopping centers and other commercial buildings, Commerce said.

In a separate report, the Labor Department said that nonfinancial corporations' productivity as measured by output per hour of all persons rose at a seasonally adjusted rate of 4.5 percent in the third quarter. Nonfinancial corporations exclude banks, credit and insurance agencies and stock and commodity brokers.

Revised data showed that third-quarter productivity of nonfarm businesses increased at a seasonally adjusted annual rate of 2.1 percent following a 1.2 percent rise in the second quarter and a 3.1 percent decline in the first, the Labor Department said.

The two sets of statistics released yesterday provided positive news for the economy. The productivity report suggested that price increases will remain moderate because of low rises in unit labor costs, or compensation per unit of output. Unit labor costs declined for nonfinancial corporations.

Additionally, the construction spending report suggested that building will continue to increase, creating jobs in construction and related industries, economists said.

"Two good reports," commented Robert Ortner, the Commerce Department's chief economist. The increase in residential construction was largely because of an increase in demand for housing fueled by a drop in mortgage interest rates, Ortner said.

Interest on fixed-rate mortgages has dropped from about 14.75 percent in the middle of last year to less than 12 percent, he noted.

The increase in productivity means that there is "very little inflationary pressure on the cost side," Ortner said. "That's another indication that inflation will not be jumping, climbing in the near future, and that's very important for long-term growth in the economy."

The increase in productivity was a result of the strong spending in new plant and equipment by businesses earlier in the economic recovery, Ortner said. Third-quarter capital spending was sluggish, and new orders for capital spending -- an indicator of future capital spending -- has been weak in recent weeks.

Output of nonfarm businesses increased 3.9 percent in the third quarter, while hours worked rose 1.8 percent, Labor said. Hourly compensation increased 3.7 percent, while compensation adjusted for inflation increased 1.3 percent. Unit labor costs in the nonfarm-business sector increased 1.6 percent in the third quarter, compared with a 2.1 percent increase in the second.

In manufacturing, productivity increased at a 3.7 percent annual rate, compared with 6.8 percent in the second quarter, Labor said. Output increased 3.3 percent, although hours worked dropped 0.3 percent. The increase in output during the quarter was the strongest in a year, Labor said. The decline in payroll hours was because of a decline in employment and an increase in the length of the manufacturing work week.

Productivity of corporations, excluding banks, credit and insurance agencies and stock and commodity brokers, rose 4.5 percent in the third quarter, following declines in three of the four preceding quarters.

Hourly compensation for nonfinancial corporations rose 3.3 percent, and unit labor costs declined at a 1.1 percent annual rate, compared with a 3.3 percent increase in the second quarter. Unit profits increased at a 33.7 percent rate in the third quarter, compared with small declines in the first two quarters of the year.

Commerce reported that $285.7 billion of new construction was begun during the first 10 months of this year, 9 percent more than during the same period last year.

Residential construction increased at a seasonally adjusted annual rate of 2 percent in October, while nonresidential construction dropped 1 percent. Commercial construction other than industrial and office building fell 5 percent in October. Public construction increased 1 percent, led by an 8 percent rise in housing and redevelopment building, Commerce said.