U.S. productivity growth slows in the third quarter

WASHINGTON (Reuters) – U.S. 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 percent annualized rate in the last quarter.

Data for the second quarter was revised slightly up to show productivity rising at 3.0 percent pace instead of the previously reported 2.9 percent 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 percent rate, following a moderation in gross domestic product growth for that period. The economy grew at a 3.5 percent rate in the July-September period after a robust 4.2 percent pace in the second quarter.

Compared to the third quarter of 2017, productivity increased at a rate of 1.3 percent. Productivity grew at an average rate of 1.3 percent between 2007 and 2017. That was slower than the 2.7 percent 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 percent pace in the third quarter. Unit labor costs in the April-June period declined at a 1.0 percent rate, which was the largest drop since the third quarter of 2014. Labor costs increased at a 1.5 percent 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 percent rate in the third quarter after rising at a 1.9 percent pace in the April-June period. Hourly compensation increased at a 2.8 percent rate compared to the third quarter of 2017.