U.S. worker productivity grew at its quickest pace in three years in the third quarter, depressing labor costs.
Nonfarm productivity, which measures hourly output per worker, increased at a 4.7% annualized rate last quarter, the fastest since the third quarter of 2020, the Labor Department said on Thursday. Data for the second quarter was revised slightly higher to show productivity growing at a rate of 3.6% instead of the previously reported 3.5% pace.
Economists polled by Reuters had forecast productivity increasing at 4.1% rate. The surge in productivity was flagged by a report last week showing the economy growing at its fastest pace in nearly two years in the third quarter.
Productivity grew at a 2.2% pace from a year ago.
The government revised the data going back a few years. Growth in productivity in the second quarter of 2020 was revised up 3.4 percentage points to a rate of 20.7%, making it the fastest since the government started tracking the series in 1947.
Productivity grew at an annual average rate of 1.2% from the fourth quarter of 2019 to the second quarter of 2023, a downward revision of 0.1 percentage point. The rate of growth in productivity for this business cycle through the third quarter is 1.4%.
Nevertheless, the back-to-back hefty increases in productivity will likely be welcomed by Federal Reserve officials. The U.S. central bank held interest rates steady on Wednesday but left the door open to a further increase in borrowing costs in a nod to the economy's resilience.
Since March 2022, the Fed has raised its policy rate by 525 basis points to the current 5.25%-5.50% range.
Unit labor costs - the price of labor per single unit of output - fell at a 0.8% rate in the third quarter. They grew at a 3.2% pace in the prior quarter. Unit labor costs rose at a 1.9% rate from a year ago. The moderate annual rise is a step in right direction towards bringing inflation down to the Fed's 2% target.
Hourly compensation rose at a 3.9% pace last quarter after accelerating at a 6.9% rate in the April-June period. It increased at a 4.2% rate from a year ago.
