Coverage: Productivity rebounds while wages rise

U.S. worker productivity rebounded in the third quarter while hourly wages rose moderately, further signs the economy is strengthening.

Josh Mitchell of The Wall Street Journal had the news:

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.

Martin Crutsinger of the Associated Press reported that the productivity jump was the biggest in three years:

The upturn in the past two quarters reflects the fact that overall output, as measured by the gross domestic product, accelerated sharply following a weak start to the year. GDP grew at an annual rate of 3.3% in the third quarter, the government reported last week, and that followed a 3.1% rise in the second quarter. It was the first back-to-back GDP gains of 3% or better in three years.

Productivity actually declined in 2016, dropping 0.1%. It was the first annual decline in 34 years and followed a string of weak annual performances since the economy emerged from recession in mid-2009.

Productivity has averaged annual gains of just 1.2% from 2007 through 2016, a sharp slowdown from average annual gains of 2.6% from 2000 to 20007. Those increases reflected a boost from the increased use of computers and the internet in the workplace.

Rising productivity allows employers to boost wages without triggering higher inflation.

Lucia Mutikani of Reuters reported that unit labor costs are weaker than originally thought:

The Labor Department said unit labor costs, the price of labor per single unit of output, dropped at a 0.2 percent annualized rate in the last quarter instead of rising at a 0.5 percent pace as reported last month.

That followed a 1.2 percent rate of decline in the second quarter, which was previously reported as a 0.3 percent pace of increase. It was the first time since 2014 that unit labor costs recorded two straight quarterly declines.

The downward revisions would suggest that inflation could struggle to rise toward the Fed’s 2 percent target. The U.S. central bank’s preferred inflation measure is currently at 1.4 percent and has been below the Fed’s target for nearly 5-1/2 years.