Revised U.S. Third-Quarter Unit Labor Costs

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United States unit labor costs were significantly weaker than what was initially imagined, dropping in both the second and third quarters this year. This implies that inflation may remain benign for some time.

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On Wednesday, the Labor Department said that unit labor costs or the price of labor per single unit of output had decreased at a 0.2 percent annualized rate last quarter rather than the increase of a a 0.5 percent rate that was reported last month.

This followed the drop at the rate of 1.2 percent in the second quarter that also had been earlier reported as a 0.3 percent rate of increase. This is the first instance in three years in which unit labor costs reported two straight quarterly declines and come prior to next week’s Federal Reserve policy meeting.

Inflation has, without fail, been short of the Federal Reserve’s 2 percent goal for just about 5-1/2 years, regardless of the labor market closing in on full employment. This has started a powerful debate between the policymakers. Compared to last year’s the third quarter, unit labor costs dropped at a 0.7 percent rate. The increase in average hourly compensation was revised to dropping to a 2.7 percent rate from the 3.5 percent rate previously reported for the third quarter.

Working hours increased at a rate of 1.1 percent for the quarter, a rising revision to the earlier reported 0.8 percent rate. Growth in worker productivity was unrevised at a 3.0 percent rate, the fastest rate seen since the third quarter of 2014. Productivity increased at a 1.5 percent rate during the second quarter.


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The movement in productivity remains slow-moving. Productivity increased at a 1.5 percent rate when compared to the third quarter of 2016. Worker productivity rose at an average annual rate of 1.2 percent from 2007 to 2016, and only 2.1 percent from 1947 to 2016.

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