Worker Productivity Rises Modestly; Labor Costs High

U.S. worker productivity increased moderately in the third quarter, resulting in only a gradual slowdown in labor costs that could cast a cloud over the inflation outlook.

Nonfarm productivity, which measures hourly output per worker, increased at a 2.2% annualized rate last quarter, the Labor Department's Bureau of Labor Statistics said on Thursday.

Data for the second quarter was revised lower to show productivity rising at a 2.1% pace instead of the previously reported 2.5% rate. Economists polled by Reuters had forecast productivity advancing at a 2.3% rate.

Productivity increased at a 2.0% pace from a year ago. The moderate pace of productivity does not bode well for the inflation and interest rate outlook.

Unit labor costs - the price of labor per single unit of output - rose at a 1.9% rate in the July-September quarter. That followed a 2.4% pace of expansion in the second quarter. Labor costs increased at a 3.4% rate from a year ago.

The Federal Reserve is later on Thursday expected to cut interest rates again, this time by a quarter of a percentage point to the 4.50%-4.75% range.

The U.S. central bank launched its policy easing cycle with an unusually large half-percentage-point rate cut in September, the first reduction in borrowing costs since 2020. The Fed hiked rates by 525 basis points in 2022 and 2023.

Compensation rose at a 4.2% rate last quarter after increasing at a 4.6% pace in the second quarter. It advanced at a 5.5% rate from a year ago.