US productivity growth slows in the third quarter

WASHINGTON (Reuters): US worker productivity slowed in the third quarter and unit labor costs rebounded after posting their biggest drop in nearly four years.

The Labor Department said on Thursday nonfarm productivity, which measures hourly output per worker, increased at a 2.2% annualised rate in the last quarter.

Data for the second quarter was revised slightly up to show productivity rising at 3.0% pace instead of the previously reported 2.9% rate. Growth in second-quarter productivity was the strongest since the first quarter of 2015.

Economists polled by Reuters had forecast third-quarter productivity advancing at a 2.2% rate, following a moderation in gross domestic product growth for that period. The economy grew at a 3.5% rate in the July-September period after a robust 4.2% pace in the second quarter.

Compared to the third quarter of 2017, productivity increased at a rate of 1.3%. Productivity grew at an average rate of 1.3% between 2007 and 2017. That was slower than the 2.7% average pace between 2000 and 2007.

Sluggish productivity is one of the constraints to keeping the economy on a path of strong growth on a sustained basis.

Unit labor costs, the price of labor per single unit of output, rebounded at a 1.2% pace in the third quarter. Unit labor costs in the April-June period declined at a 1.0% rate, which was the largest drop since the third quarter of 2014. Labor costs increased at a 1.5% rate compared to the third quarter of 2017.

Despite moderate growth in labor costs, wage growth is picking up. Hourly compensation jumped at a 3.5% rate in the third quarter after rising at a 1.9% pace in the April-June period. Hourly compensation increased at a 2.8% rate compared to the third quarter of 2017.