U.S. productivity grows strongly in sequential terms in Q3

Productivity in the U.S. grew strongly in the third quarter after declining for three continuous quarters. Nonfarm business output per hour rose 3.1 percent sequentially, unrevised from its initial estimate. Consensus expectations were for a minor upward revision to productivity based on a similar revision to output data. But the third quarter report indicated that hours worked were also upwardly revised, leaving productivity growth unchanged.

Employee hours were up 0.5 percent, as compared with the initial reading of 0.3 percent. This is a sharp slowdown from second quarter’s 1.7 percent. Real compensation per hour rose strongly, even if it is slightly slower than the prior quarter. It slowed to 2.2 percent in the third quarter from 3.4 percent in the second quarter. Faster growing productivity as compared with unit labor costs resulted in ULC growth to decelerate considerably, although this is a volatile series and such fluctuations are not uncommon, noted Barclays in a research report.

On a year-on-year basis, productivity remained flat, returning to neutral after staying in negative territory for a brief period in the second quarter, and reflecting the weak performance of productivity in recent quarters. After the recession, the underlying trend in productivity growth has been especially weak and at historically low levels. On the contrary, unit labor cost growth has been rebounding. In recent years, slow growth in output prices and rapidly rising unit labor costs have depressed unit profits for firms, added Barclays.

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