U.S. Labor Productivity Tumbles In Q3, Labor Costs Spike

A report released by the Labor Department on Thursday showed a steep drop in U.S. labor productivity in the third quarter.

The Labor Department said labor productivity tumbled by 5.0 percent in the third quarter after surging by an upwardly revised 2.4 percent in the second quarter.

Economists had expected labor productivity to decrease by 1.5 percent compared to the 2.1 percent jump that had been reported for the previous quarter.

The sharp pullback in productivity, a measure of output per hour, came as output increased by 1.7 percent compared to a 7.0 percent spike in hours worked.

Meanwhile, the report showed unit labor costs soared by 8.3 percent in the third quarter after climbing by a downwardly revised 1.1 percent in the second quarter.

Labor costs were expected to shoot up by 5.2 percent compared to the 1.3 percent increase that had been reported for the previous quarter.

The spike in unit labor costs reflected the steep drop in productivity as well as a 2.9 percent jump in hourly compensation.

However, the Labor Department said real hourly compensation, which takes changes in consumer prices into account, slumped by 3.5 percent.

“We look for productivity growth to stay upbeat in the near-term even as the labor market recovery heats up and the economy maintains solid momentum,” said Oren Klachkin, Lead U.S. Economist at Oxford Economics.

He added, “Farther ahead, we expect a mix of factors – a strong investment cycle, increased business dynamism, faster technology adoption, and lasting remote work – to power above-trend productivity growth in the post-Covid era.”

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