US Q4 labour costs revised higher; productivity growth lowered

US labour costs grew faster than initially thought in the fourth quarter, though the pace has slowed from the prior quarters.

Unit labour costs - the price of labour per single unit of output - accelerated at a 3.2 per cent annualised rate last quarter, the Labor Department said on Thursday (Mar 2). That was revised up from the 1.1 per cent pace reported last month.

Labour costs rose at a 6.9 per cent rate in the third quarter, and notched hefty gains in the prior two quarters. Economists polled by Reuters had forecast labour costs being revised up to a 1.6 per cent growth pace. Unit labour costs rose at a 6.3 per cent rate from a year ago, revised up from the previously reported 4.5 per cent pace.

They surged 6.5 per cent in 2022, instead of 5.7 per cent as reported last month, too fast to be consistent with the Federal Reserve’s 2 per cent inflation target. Labour market tightness and stubbornly high inflation have stoked fears that the Fed could continue raising interest rates into summer.

The US central bank is expected to deliver two additional 25-basis-point rate hikes in March and May, though financial markets are betting on another increase in June. The Fed has raised its policy rate by 450 basis points since last March from near-zero to a 4.50 per cent-4.75 per cent range.

Hourly compensation increased at a 4.9 per cent pace, instead of a 4.1 per cent rate as previously reported. It rose at an 8.2 per cent rate in the third quarter and grew at a 4.4 per cent rate compared with the fourth quarter of 2021.

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With labour costs revised higher, growth in nonfarm productivity, which measures hourly output per worker, was downgraded to a 1.7 per cent rate from the previously reported 3.0 per cent pace in the fourth quarter. Economists forecast productivity growth being lowered to a 2.6 per cent rate.

The downward revision to productivity was telegraphed by data last week showing gross domestic product growth for the fourth quarter trimmed to a 2.7 per cent rate from the previously estimated 2.9 per cent pace. Productivity grew at a 1.2 per cent pace in the third quarter. Productivity fell at a 1.8 per cent rate from a year ago. For all of 2022, productivity fell 1.7 per cent. That was revised down from the 1.3 per cent published last month.

Large shifts in the composition of the workforce in the wake of the pandemic have made it harder to get a clear read of productivity. REUTERS