Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Despite nonfarm labor productivity coming in short of expectations in the third quarter, revisions show a more robust productivity environment in recent years. Nonfarm productivity growth has increased at an average annualized rate of 1.8% this cycle, up from a 1.6% average prior to revisions and a 1.5% pace the past cycle.
Revisions also showed a stronger pace of unit labor costs (ULCs) than previously reported. On a four-quarter moving average basis, ULCs were 3.0% year-over-year in Q3—above the Federal Reserve’s 2% inflation target but still a marked improvement from 2022. On balance, these data support the FOMC easing monetary policy at a more gradual pace in the coming months.
It’s Better Than It Looks
Nonfarm labor productivity, defined as output per hour worked, increased at a 2.2% annualized rate in the third quarter. The outturn was a bit less than expected and comes on the heels of a downward revision to the prior quarter (2.1% from 2.5% previously) that was largely driven by a lower measure of output during the quarter. Incorporating the revisions, nonfarm labor productivity was 2.0% year-over-year in Q3.