US Productivity Grows by Most Since 2020, Labor Costs Decrease

(Bloomberg) -- US labor productivity advanced by the most in three years, helping to alleviate the inflationary impact of recent wage growth. 

Productivity, or nonfarm business employee output per hour, rose at a 4.7% annualized rate in the third quarter after climbing 3.6% in the prior period, data from the Bureau of Labor Statistics showed Thursday. 

Unit labor costs, or what a business pays employees to produce one unit of output, decreased at a 0.8% rate after climbing 3.2% in the second quarter. It marked the first decline since late 2022.

Quarterly productivity figures are quite volatile, but overall, the back-to-back advances suggest companies are stepping up efforts to improve efficiency. Despite high borrowing costs, business investment has held firm, supporting long-term economic growth. 

Sustained productivity growth helps curb the sting of higher wages and other costs that may otherwise prompt companies to raise their prices of goods and services. With pay still rising at a robust clip, Federal Reserve officials will likely take some comfort in the rapid productivity growth.

Output increased at the fastest pace since 2021. Hours worked picked up in the third quarter after declining in the prior period. As a result, hourly compensation growth decelerated to a still-firm 3.9% rate.

The third quarter marked an exceptional period for economic growth. Gross domestic product — a key gauge of economic activity — jumped at a 4.9% annualized pace in the July-to-September period, fueled by the strongest pace of consumer spending since 2021. 

The employment cost index, a broad gauge of wages and benefits, also accelerated last quarter, fueled by a pickup in salary growth. Though employment costs have slowed compared to a year earlier, the quarterly figures cast doubt on the durability and momentum of that downward trend. 

Despite the third quarter strength, central bank officials held off on raising interest rates at the conclusion of their latest policy meeting. Furthermore, Fed Chair Jerome Powell hinted on Wednesday that the central bank may now be finished with rate hikes.

Read More: US Continuing Jobless Claims Increase for Sixth Straight Week

Separate figures from the Labor Department on Thursday showed a slight pickup in initial applications for jobless benefits and the highest level of continuing claims since April. 

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