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Q3 Productivity & Costs: Productivity Steady As Unit Labor Costs Drop

December 6, 2017
Bottom Line: Productivity rose in the final reading for 2017 Q3, in-line with the initial report a month ago but modestly below expectations. Meanwhile, unit labor costs were slightly lower than previously estimated. These revisions reflect the recent adjustments to Q3 GDP, payroll employment, the workweek, and wages and salaries.

Given the current state of the economic growth, productivity is increasing modestly while unit labor costs are now falling slightly. While hiring has been strong, it has decelerated modestly in the last year, which, in turn, meant productivity ticked higher as total output in the economy continued to grow.

Nonfarm Business Productivity was unchanged at by 3.0% in 2017 Q3, compared with market expectations for an upward revision to an increase of 3.3%.

This revision left the year-on-year growth rate of labor productivity at 1.5%.

  • Output was revised modestly higher, from 3.8% to 4.1%, reflecting the recent adjustment in 2017 Q3 nonfarm business GDP.
  • Hours Worked was revised up to 1.1% from 0.8%, reflecting the recent revisions to employment.
  • Compensation was revised modestly lower, from 3.5% to 2.7%. Over the past year, compensation has risen by 0.8%.

As a result of these adjustments, Unit Labor Costs were REVISED DOWN from 0.5% to -0.2%. Over the past year, unit labor costs have decreased by -0.7%.