US productivity weak in third quarter; labor costs revised lower

US productivity weak in third quarter; labor costs revised lower

U.S. worker productivity fell by the most in nearly four years in the third quarter, the government confirmed, while growth in unit labor costs was not as robust as initially thought.

FILE PHOTO:  Work crews construct a new hotel complex on oceanfront property in Encinitas, Californ
FILE PHOTO: Work crews construct a new hotel complex on oceanfront property in Encinitas, California, U.S., November 26, 2019. REUTERS/Mike Blake

WASHINGTON: U.S. worker productivity fell by the most in nearly four years in the third quarter, the government confirmed, while growth in unit labor costs was not as robust as initially thought.

The Labor Department said on Tuesday nonfarm productivity, which measures hourly output per worker, decreased at a 0.2per cent annualized rate in the last quarter, the biggest drop since the fourth quarter of 2015.

Productivity was previously reported to have decreased at a 0.3per cent pace in the July-September quarter. A rebound in hours, driven by a surge in the volatile self-employed and unpaid family workers component, outpaced output in the third quarter.

Productivity grew at an unrevised 2.5per cent rate in the second quarter. Economists polled by Reuters had expected third-quarter productivity would be revised up to show it falling at a 0.1per cent rate.

The government last month revised up third-quarter gross domestic product growth to a 2.1per cent rate from a 1.9per cent pace.

Compared to the third quarter of 2018, productivity increased at a 1.5per cent rate, instead of the previously reported 1.4per cent pace. Tepid productivity suggests the economy is unlikely to achieve the Trump administration's goal of 3per cent annual growth.

Productivity increased at an average annual rate of 1.3per cent from 2007 to 2018, below its long-term rate of 2.1per cent from 1947 to 2018, indicating that the speed at which the economy can grow over a long period without igniting inflation has slowed.

Some economists blame soft productivity on a shortage of workers as well as the impact of rampant drug addiction in some parts of the country. Others also argue that low capital expenditure, which they say has resulted in a sharp drop in the capital-to-labor ratio, is holding down productivity.

There is also a belief that productivity is being inaccurately measured, especially on the information technology side. Federal Reserve Chairman Jerome Powell said in October the U.S. central bank was "carefully assessing the implications of possibly mismeasured productivity gains."

Fed officials were scheduled to begin a two-day policy meeting on Tuesday. The central bank is not expected to cut interest rates on Wednesday after reducing borrowing costs in October for the third time this year.

Hours worked rose at a revised 2.5per cent rate last quarter. That was up from the 2.4per cent pace estimated in November.

Soft productivity last quarter lifted labor costs, though the pace of increase was not as robust as previously estimated. Unit labor costs, the price of labor per single unit of output, increased at a 2.5per cent rate in the third quarter. They were previously reported to have advanced at a 3.6per cent rate.

Compared to the third quarter of 2018, labor costs grew at a 2.2per cent rate, rather than the previously estimated 3.1per cent.

Hourly compensation increased at a 2.3per cent rate in the third quarter, instead of the originally reported 3.3per cent pace. Hourly compensation rose at a 3.7per cent rate compared to the third quarter of 2018.

Last quarter's gains in unit labor costs and compensation are in line with other measures showing moderate wages gains, suggesting inflation will probably continue to run below the Fed's 2per cent target.

(Reporting by Doina Chiacu; Editing by Angus MacSwan)

Source: Reuters

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