Labor costs and productivity were both weaker than expected.

Economists at Econoday expected unit labor costs to rise 3.4% quarter-over-quarter. Instead, costs rose 2.5%.

Productivity fell 0.2% compared to an estimate of a 0.1% decline.

Let's dive into the BLS Productivity and Costs Third Quarter 2019, Revised report for more details.

Nonfarm Business Sector Labor Productivity

Productivity decreased 0.2 percent in the third quarter of 2019, theU.S. Bureau of Labor Statistics reported today, as output increased 2.3 percent and hours worked increased 2.5 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.)

From the third quarter of 2018 to the third quarter of 2019, productivity increased 1.5 percent, reflecting a 2.3-percent increase in output and a 0.9-percent increase in hours worked.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers.

Unit Labor Costs

Unit labor costs in the nonfarm business sector increased 2.5 percent in the third quarter of 2019, reflecting a 2.3-percent increase in compensation per hour and a 0.2-percent decline in productivity. Unit labor costs increased 2.2 percent over the last four quarters.

BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs, and increases in output per hour tend to reduce them.

Manufacturing Sector Labor Productivity

Manufacturing productivity increased 0.1 percent in the third quarter of 2019, as output increased 1.3 percent and hours worked increased 1.2 percent. Total manufacturing sector productivity declined 0.1 percent over the last four quarters, as output decreased 0.5 percent and hours worked decreased 0.4 percent.

Productivity increased 0.7 percent in the durable manufacturing sector in the third quarter of 2019, reflecting a 1.8-percent increase in output and a 1.0-percent increase in hours worked. Productivity decreased 0.8 percent in the nondurable manufacturing sector as output increased 0.8 percent and hours worked increased 1.6 percent.

Unit labor costs in the total manufacturing sector increased 3.0 percent in the third quarter of 2019 and increased 4.4 percent from the same quarter a year ago.