U.S. worker productivity rebounded in the third quarter while hourly wages rose moderately, further signs the economy is strengthening.
Productivity — a measure of goods and services produced in the U.S. per hour worked — rose at a 3% annual rate in July through September, the Labor Department said Wednesday, the biggest jump in three years. The estimate, the agency’s second, reaffirmed its initial take on third-quarter productivity, released last month.
Hourly compensation for workers climbed at a 2.7% rate in the third quarter, up from a meager 0.3% increase in the second.
Productivity is the biggest factor in raising Americans’ living standards. Higher productivity boosts companies’ profits and, in turn, their ability to invest and raise workers’ wages. Productivity growth has been sluggish during the current expansion, stirring concerns about the economy’s long-term growth outlook, but it has picked up in recent quarters.
“Productivity growth has shown signs of a pulse this year for the first time in a very long time,” economist Stephen Stanley of Amherst Pierpont Securities said in a note to clients. He said lighter regulation under the Trump administration and the prospect of a $1.4 trillion tax-cut package being passed by Congress are likely factors that have led companies to boost investment and become more productive.
Because productivity rose more quickly than hourly compensation during the summer, the cost of labor per unit produced fell. In effect, it became cheaper for employers to produce goods during the third quarter, as measured by labor costs. Unit labor costs declined at a 0.2% rate compared to the second quarter; they fell 0.7% over the past year.
Over a broader period, productivity and hourly compensation remain weak. Productivity grew 1.5% over the past year, up from earlier in the current expansion but below the postwar average annual growth of 2.1%.
Hourly compensation grew 0.8% over the past year, far below the historical average annual gain of 5%.
Unemployment, at 4.1%, is very low historically, and economic growth pierced 3% in the second and third quarters. A strengthening labor market and economy typically lead to stronger wage growth and inflation pressures, but various measures show inflation remains below the Federal Reserve’s 2% annual target.
Source: Dow Jones