Q2018 (Final): Headline Productivity Improving At A Faster Rate Than Labor Costs

A simple summary of the headlines for this release is that productivity improved while the labor costs slowed. Year-over-year analysis shows productivity rising faster than labor costs.

Analyst Opinion of Productivity and Costs

I only look at year-over-year data - the headline compounding distorts the view. I have issues with the way productivity is determined - see the end of this analysis.

Productivity trend is improving while unit labor cost trend is slowing.

The headlines annualize quarterly results (Econintersect uses year-over-year change in our analysis). If data is analyzed in year-over-year fashion, non-farm business productivity improved 1.3 % year-over-year, and unit labor costs were up 0.9 % year-over-year [preliminary published 1.5%]. Bottom line: the year-over-year data is saying that productivity improvements are outpacing labor cost growth.

The market was expecting:

seasonally adjusted quarter-over-quarter at annual rate Consensus Range Consensus Preliminary Actual Final Actual
Nonfarm productivity 2.2 % to 2.8 % +2.3 % +2.2 % +2.3 %
Unit labor costs 0.8 % to 1.2 % +1.1 % +1.2 % +0.9 %

Please note that the following graphs are for a sub-group of the report nonfarm > business.

Seasonally Adjusted Year-over-Year Change in Output of Business Sector

Seasonally Adjusted Year-over-Year Change of Output per Hour for the Business Sector

All this is happening while business sector unit labor costs increased.

Seasonally Adjusted Year-over-Year Rate of Change of Unit Labor Costs

The headlines from the press release:

Nonfarm business sector labor productivity increased 2.3 percent during the third quarter of 2018, the U.S. Bureau of Labor Statistics reported today, as output increased 4.1 percent and hours worked increased 1.8 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the third quarter of 2017 to the third quarter of 2018, productivity increased 1.3 percent, reflecting a 3.7-percent increase in output and a 2.3-percent increase in hours worked.

Unit labor costs in the nonfarm business sector increased 0.9 percent in the third quarter of 2018, reflecting a 3.1-percent increase in hourly compensation and a 2.3-percent increase in labor productivity. Unit labor costs also increased 0.9 percent over the last four quarters.

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