US productivity still sluggish as compensation growth picks up

The final estimate of Q3 productivity and unit labor costs revised up productivity growth in line with expectations and reported an unexpected upward revision to compensation growth and unit labor costs. Productivity, measured as nonfarm business output per hour, is now estimated to have grown 2.2% q/q saar (initial: 1.6%) and 0.6% y/y (initial: 0.4%) in Q3. This upward revision met expectations, as it was in line with the revisions in the GDP report; however, productivity remains sluggish.

Hours were revised up a touch (-0.3% q/q saar, initial: -0.5%), yet continue to show a contraction in Q3. The compensation side of the report saw upward revisions in line with the boost to Q3 personal income from the Quarterly Census of Employment and Wages.

Real compensation is now estimated to have grown 2.4% q/q saar (initial: 1.4%) and 3.4% y/y (initial: 2.2%), with compensation per hour revised up to 4.0% q/q saar (initial: 3.0%) and 3.6% y/y (initial: 2.4%). These revisions led unit labor costs, a measure of how fast compensation is growing relative to output, to rise to 1.8% q/q (initial: 1.4%) and 3.0% y/y (initial: 2.0%).

"We view the revisions to compensation growth in this morning's report as encouraging. Labor market tightness may finally be starting to lead to an uptick in wage growth; however, this indication is tentative as of yet. Productivity, on the other hand, has to recovery from five years of subpar growth, and we see little evidence of a substantial pickup coming in the near future", says Barclays.