US productivity weak in Q3; labour costs revised lower

[WASHINGTON] US worker productivity fell by the most in nearly four years in the third quarter, the government confirmed, while growth in unit labour costs was not as robust as initially thought.

The Labour Department said on Tuesday nonfarm productivity, which measures hourly output per worker, decreased at a 0.2 per cent annualised rate in the last quarter, the biggest drop since the fourth quarter of 2015.

Productivity was previously reported to have decreased at a 0.3 per cent pace in the July-September quarter. A rebound in hours, driven by a surge in the volatile self-employed and unpaid family workers component, outpaced output in the third quarter.

Productivity grew at an unrevised 2.5 per cent rate in the second quarter. Economists polled by Reuters had expected third-quarter productivity would be revised up to show it falling at a 0.1 per cent rate.

The government last month revised up third-quarter gross domestic product growth to a 2.1 per cent rate from a 1.9 per cent pace.

Compared to the third quarter of 2018, productivity increased at a 1.5 per cent rate, instead of the previously reported 1.4 per cent pace. Tepid productivity suggests the economy is unlikely to achieve the Trump administration's goal of 3 per cent annual growth.

Productivity increased at an average annual rate of 1.3 per cent from 2007 to 2018, below its long-term rate of 2.1 per cent from 1947 to 2018, indicating that the speed at which the economy can grow over a long period without igniting inflation has slowed.

Some economists blame soft productivity on a shortage of workers as well as the impact of rampant drug addiction in some parts of the country. Others also argue that low capital expenditure, which they say has resulted in a sharp drop in the capital-to-labor ratio, is holding down productivity.

There is also a belief that productivity is being inaccurately measured, especially on the information technology side. Federal Reserve Chairman Jerome Powell said in October the US central bank was "carefully assessing the implications of possibly mismeasured productivity gains."

Fed officials were scheduled to begin a two-day policy meeting on Tuesday. The central bank is not expected to cut interest rates on Wednesday after reducing borrowing costs in October for the third time this year.

Hours worked rose at a revised 2.5 per cent rate last quarter. That was up from the 2.4 per cent pace estimated in November.

Soft productivity last quarter lifted labour costs, though the pace of increase was not as robust as previously estimated. Unit labour costs, the price of labour per single unit of output, increased at a 2.5 per cent rate in the third quarter. They were previously reported to have advanced at a 3.6 per cent rate.

Compared to the third quarter of 2018, labor costs grew at a 2.2 per cent rate, rather than the previously estimated 3.1 per cent.

REUTERS