Productivity Growth Falls, Labor Costs Increase

Lower output pulled down productivity growth and pushed up unit labor costs in the third quarter. Productivity rose 1.6 percent in the quarter which is in the middle of the Econoday consensus range but well above the plus 0.1 percent median. Unit labor costs came in at a lower-than-expected plus 1.4 percent.

Output slowed to plus 1.2 percent in the third quarter vs 5.1 percent in the second quarter. Limiting the rise in labor costs was a 0.5 percent decline in hours worked, which is the first decline in five years. The decline here, however, was offset by a 3.0 percent rise in compensation.

A look at year-on-year rates shows how soft productivity growth is, at plus 0.4 percent in the quarter vs plus 0.8 percent in the second quarter and vs a post-war average of plus 2.2 percent. Labor costs are up a year-on-year 2.0 percent vs the second quarter's plus 1.6 percent. Low productivity is consistent with full employment and an aging economic cycle.

Recent History Of This Indicator:
Non-farm productivity is expected to show little change in the third quarter, at a consensus plus 0.1 percent. In contrast, unit labor costs are expected to show pressure, up 2.2 percent and reflecting the third-quarter's moderate growth rate. Soft growth, higher labor costs together with tight labor supply is an inflationary combination for policy makers.