U.S. third-quarter productivity pared; unit labor costs revised up

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. worker productivity increased strongly in the third quarter, though the pace of growth was likely overstated as the sharp rebound in output from the COVID-19 pandemic recession has far outpaced employment gains.

The Labor Department said on Tuesday nonfarm productivity, which measures hourly output per worker, increased at a 4.6% annualized rate last quarter. The slight downward revision from the 4.9% pace estimated last month followed a 10.6% rate of growth in the second quarter, which was the fastest since the first quarter of 1971.

The economy expanded at a historic 33.1% annualized rate in the July-September quarter, thanks to more than $3 trillion in government pandemic relief for businesses and workers. That followed a record 31.4% pace of contraction in the second quarter. Strong productivity explains the divergence between GDP growth and the labor market.

The economy has recouped two-thirds of output lost during the coronavirus crisis, while only about 56% of the 22.2 million jobs lost in March and April. A wide gap between output and employment is not unusual during recessions, with a similar trend observed during the 2007-09 Great Recession.

Economists polled by Reuters had forecast productivity growth would be unrevised at a 4.9% rate in the third quarter. The COVID-19 downturn has decimated lower-wage industries, like leisure and hospitality, which economists say tend to be less productive.

According to Moodys’ Analytics chief economist, Mark Zandi, there has been a shift in economic activity to big companies from small and medium-sized retailers. Zandi also noted that big businesses across industries are taking advantage of the pandemic to aggressively implement labor-saving technology.

“The underlying rate of productivity has not shifted from what it was before,” said Zandi. “There is no fundamental shift in productivity growth going forward, but it means it’s going to take a while to recover all the jobs lost unless we have good policy in place.”

U.S. financial markets were little moved by the data.

Compared to the third quarter of 2019, productivity increased at a 4.0% rate instead of the 4.1% pace reported last month.

Hours worked rebounded at a 37.1% rate, rather than the 36.8% rate estimated in November. That followed a record 42.9% pace of decline in the second quarter.

Unit labor costs – the price of labor per single unit of output – plunged at a 6.6% rate instead of an 8.9% rate as previously reported. Unit labor costs rose at a 12.3% pace in the second quarter. They increased at a 4.0% rate from a year ago.

“The big swings in the unit labor costs data in recent quarters make it hard to detect an underlying trend, but overall we think that the shock to the economy coming from COVID-19 should weigh on employee compensation,” said Daniel Silver, an economist at JPMorgan in New York.

Hourly compensation fell at a 2.3% rate last quarter, instead of a 4.4% pace as previously reported. That followed a 24.3% rate of acceleration in the second quarter. Compensation increased at a 8.2% rate compared to the third quarter of 2019.

(Reporting by Lucia Mutikani; Editing by Andrew Heavens and Andrea Ricci)

U.S. productivity rises more than expected in fourth quarter

FILE PHOTO: A worker cuts a steel coil at the Novolipetsk Steel PAO steel mill in Farrell, Pennsylvania, U.S., March 9, 2018. REUTERS/Aaron Josefczyk

WASHINGTON, March 7 – U.S. worker productivity rose more than expected in the fourth quarter, leading to the biggest annual increase in eight years.

The Labor Department said on Thursday non farm productivity, which measures hourly output per worker, increased at a 1.9 percent annualized rate in the last quarter.

Data for the third quarter was revised down to show productivity rising at a pace of 1.8 percent instead of the previously reported 2.2 percent rate.

Economists polled by Reuters had forecast fourth-quarter productivity advancing at a 1.6 percent rate following a moderation in gross domestic product growth for that period. The economy grew at a 2.6 percent rate in the October-December period after a robust 3.4 percent growth pace in the third quarter.

The release of the full fourth-quarter productivity report was delayed by a 35-day partial shutdown of the U.S. government that ended on Jan. 25. The lapse in funding affected the collection and processing of economic data by the Commerce Department.

Compared to the fourth quarter of 2017, productivity increased at a rate of 1.8 percent. Productivity grew 1.3 percent in 2018, the strongest since 2010, after rising 1.1 percent in 2017.

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, rose at a 2.0 percent pace in the fourth quarter.

Unit labor costs in the July-September period grew at a 1.6 percent rate. Labor costs increased at a 1.0 percent rate compared to the fourth quarter of 2017.

They increased 1.4 percent in 2018, the smallest gain since 2016, after rising 2.2 percent in 2017.

Despite moderate gains in labor costs, compensation is rising. Hourly compensation increased at a 3.9 percent rate in the fourth quarter after advancing at a 3.5 percent pace in the July-September period. Hourly compensation increased at a 2.8 percent rate compared to the fourth quarter of 2017. It increased 2.7 percent in 2018.

(Reporting by Lucia Mutikani Editing by Paul Simao)