WASHINGTON- US worker productivity rebounded at a bit faster pace than initially thought in the third quarter, though the trend remained weak, keeping labor costs elevated.
Economists said the report from the Labor Department on Wednesday pointed to inflation staying high and the Federal Reserve continuing to raise interest rates for some time. The US central bank is in the midst of its fastest monetary policy tightening cycle since the 1980s as it fights to bring inflation back to its 2 percent target.
“While not the timeliest measure, the recent strength in unit labor costs is consistent with the idea that the tight labor market is keeping upward pressure on employment costs,” said Daniel Silver, an economist at JPMorgan in New York.
Nonfarm productivity, which measures hourly output per worker, rose at a 0.8 percent annualized rate last quarter. That was revised up from the 0.3 percent pace reported last month and ended two straight quarterly decreases.
Productivity dropped at a 4.1 percent rate in the second quarter. The revision to the third-quarter data was due to upgrades to output and hours worked.
Economists polled by Reuters had expected productivity would be revised up to a 0.6 percent pace.
Productivity fell at a 1.3 percent rate from a year ago, instead of the previously reported 1.4 percent pace. It has now declined for three straight quarters on an annual basis. Large shifts in the composition of the workforce in the wake of the COVID-19 pandemic have made it harder to measure productivity.
But with productivity growth averaging a 1.6 percent rate over the last five years, some economists said the recent weakness was overstated.
Unit labor costs – the price of labor per single unit of output – increased at a 2.4 percent rate. They were previously reported to have advanced at a 3.5 percent pace.
Unit labor costs rose at a 5.3 percent rate from a year ago instead of the previously reported 6.1 percent pace.
“Unit labor cost growth is running at a pace that is far too fast to be consistent with the Fed’s inflation target, as is unit price growth with the nonfarm price deflator up 7.1 percent over the last four quarters,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “The productivity, cost, and profit margins data will be important in shaping how inflation and the trajectory of the economy unfolds.”
Hourly compensation increased at a 3.2 percent pace, revised down from the 3.8 percent rate reported last month. Compensation rose at 2.3 percent pace in the second quarter. It increased at a 4.0 percent rate compared to the third quarter of 2021, rather than at a 4.7 percent as previously reported.— Reuters
