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U.S. Productivity Increases By 1.9% In Q3, Less Than Expected

NonFarmProductivity 111413

Labor productivity in the U.S. rose by less than expected in the third quarter, according to a report released by the Labor Department on Thursday, although the report also showed a bigger than expected decrease in unit labor costs.

The report said productivity increased by 1.9 percent in the third quarter compared to the 1.8 percent growth seen in the second quarter. Economists had expected productivity to jump by about 2.3 percent.

While productivity rose by less than expected, the increase still reflects the fastest growth since a 2.5 percent jump in the third quarter of 2012.

The increase in productivity, which is a measure of output per hour, came as output surged up by 3.7 percent in the third quarter compared to a 1.7 percent increase in hours worked.

Erik Johnson, Senior U.S. Economist at IHS Global Insight, said, "Productivity growth was little changed from the second quarter as both of its inputs strengthened by roughly the same factor."

"These two positive quarters follow back-to-back quarters with 1.7% declines in productivity, which were the first consecutive declines of more than 1.5% in twenty years," he added.

Meanwhile, the Labor Department said unit labor costs fell by 0.6 percent in the third quarter, offsetting the 0.5 percent increase seen in the second quarter. Labor costs had been expected to dip by 0.3 percent.

The drop in labor costs came as the increase in productivity outpaced the 1.3 percent increase in hourly compensation. Real hourly compensation, which takes changes in consumer prices into account, fell by 1.3 percent.

Compared to the same quarter a year ago, productivity was flat in the third quarter, as output and hours worked both rose by 1.8 percent.

Unit labor costs subsequently rose 1.9 percent year-over-year amid a matching increase in hourly compensation.

Looking ahead, Johnson said, "We generally expect more of the same from the labor market in the near term and anticipate a minimal net gain in productivity over the next two quarters."

"Productivity should eke out a small gain for 2013 and drift up slowly," he added. "In our latest forecast, productivity growth averages 1.4% over the next five years before moving closer to the long-term trend rate of 2% for the balance of the forecast."

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