| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Nonfarm Productivity - Annual Rate | 4.8% | 1.2% to 5.0% | 5.2% | 4.7% |
| Unit Labor Costs - Annual Rate | -0.9% | -1.0% to 3.0% | -1.2% | -0.8% |
Highlights
Nonfarm productivity is revised higher to up 5.2 percent in the third quarter 2023 after 4.7 percent in the first estimate and growth of 3.6 percent in the second quarter. This is above the consensus of 4.8 percent in the Econoday survey of forecasters. The pace of productivity is the fastest since 5.7 percent in the third quarter 2020 when the US economy was bouncing back from the pandemic shutdown period.
Unit labor costs fell 1.2 percent in the third quarter 2023 versus a 0.8 percent decline in the first estimate and 2.6 percent contraction in the second quarter. The decrease is slightly deeper than the consensus of down 0.9 percent in the Econoday survey. Cooling in upward wage pressures is reducing some labor costs.
Unit labor costs fell 1.2 percent in the third quarter 2023 versus a 0.8 percent decline in the first estimate and 2.6 percent contraction in the second quarter. The decrease is slightly deeper than the consensus of down 0.9 percent in the Econoday survey. Cooling in upward wage pressures is reducing some labor costs.
Market Consensus Before Announcement
The second-estimate for third-quarter nonfarm productivity is expected to rise at a 4.8 percent annual rate, little changed from 4.7 percent in the first estimate. Unit labor costs, which fell 0.8 percent in the first estimate, is expected to fall 0.9 percent in the second estimate.
Definition
Productivity measures the growth of labor efficiency in producing the economy's goods and services. Unit labor costs reflect the labor costs of producing each unit of output. Both are followed as indicators of future inflationary trends.
Description
Productivity growth is critical because it allows for higher wages and faster economic growth without inflationary consequences. In periods of robust economic growth, productivity ensures that inflation will remain well behaved despite tight labor markets. Productivity growth is also a key factor in helping to increase the overall wealth of an economy since real wage gains can be made when workers are more productive per hour.
Productivity and labor cost trends have varied over the decades. In the late 1990s, some economists asserted that dramatic productivity advances (based on new technologies) were then allowing the economy to sustain a much faster pace of growth than previously thought possible. Initially, some Fed officials expressed skepticism but later decided that productivity gains had helped boost economic growth and potential GDP growth during the 1990s. That is, the economy could grow faster than previously believed without igniting inflation.
Determining the source of productivity gains has become trickier over the last decade as new technology continues to be incorporated into production - not just in the U.S. but overseas also. Similarly, retraining U.S. workers has been sporadic. Not just low skill jobs are outsourced but now many highly skilled jobs such as programming and accounting are as well. Nonetheless, highly skilled professional jobs have been increasingly difficult to fill during times of high demand. Despite the cross currents in labor market trends, long-term productivity gains are important for maintaining growth in labor income and keeping inflation low.
But in the short-term, output and hours worked can shift sharply just due to cyclical swings in the economy. During the onset of recession, output typically falls before hours worked. This can result in a temporary drop in productivity and a spike in unit labor costs. So, while long-term productivity determines the"speed limit" for long-term growth, one should not be misled by short-term cyclical gyrations in productivity numbers as reflecting the true, underlying trend.
Productivity and labor cost trends have varied over the decades. In the late 1990s, some economists asserted that dramatic productivity advances (based on new technologies) were then allowing the economy to sustain a much faster pace of growth than previously thought possible. Initially, some Fed officials expressed skepticism but later decided that productivity gains had helped boost economic growth and potential GDP growth during the 1990s. That is, the economy could grow faster than previously believed without igniting inflation.
Determining the source of productivity gains has become trickier over the last decade as new technology continues to be incorporated into production - not just in the U.S. but overseas also. Similarly, retraining U.S. workers has been sporadic. Not just low skill jobs are outsourced but now many highly skilled jobs such as programming and accounting are as well. Nonetheless, highly skilled professional jobs have been increasingly difficult to fill during times of high demand. Despite the cross currents in labor market trends, long-term productivity gains are important for maintaining growth in labor income and keeping inflation low.
But in the short-term, output and hours worked can shift sharply just due to cyclical swings in the economy. During the onset of recession, output typically falls before hours worked. This can result in a temporary drop in productivity and a spike in unit labor costs. So, while long-term productivity determines the"speed limit" for long-term growth, one should not be misled by short-term cyclical gyrations in productivity numbers as reflecting the true, underlying trend.
