Second estimate of U.S. productivity growth remains at 3 pct in Q3, unit labor costs drop modestly

U.S. productivity growth for the third quarter remained the same at 3 percent in the second estimate, after rising considerably from a 1.5 percent figure in the second quarter. Nonfarm business output was up 4.1 percent sequentially, as compared with the prior quarter’s 3.9 percent growth, driving most of the rebound in productivity in the past two quarters. Meanwhile, employee hours decelerated to 1.1 percent from second quarter’s 2.4 percent, further aiding in the rebound of productivity. Compensation per hour was downwardly revised to 2.7 percent and adjusted for inflation real compensation rose 0.7 percent. Unit labor costs dropped 0.2 percent, a weak performance for the second straight quarter.

Productivity, on a year-on-year basis, grew 1.5 percent, considerably rebounding from 2016 when productivity was falling. The recent rebound marks some progress in what has otherwise been a very soft trend for productivity growth in the U.S. However, by historical standards, productivity growth remains subdued and trend growth in unit labor costs continues to surpass.

Unit labor costs dropped 0.7 percent year-on-year and in recent quarters have reversed the buoyant rise of recent years, implying that the trends of productivity and unit labor costs are likely to converge in the quarters ahead, noted Barclays. On the compensation side, there has been a continued deceleration in recent quarters as compensation per hour and employee hours worked has decelerated.

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