U.S. Labor Costs Unexpectedly Fell in Third Quarter

By Josh Mitchell and Sharon NunnFeaturesDow Jones Newswires

U.S. productivity surged in the third quarter while labor costs fell further, another sign of subdued inflation pressures despite a sturdy economy.

Productivity rose at a 3% annual rate in the third quarter, the Labor Department said Wednesday, the biggest jump in three years. The estimate, the agency's second, reaffirmed its initial take on productivity released last month.

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But the agency released a big downward revision to unit labor costs, or the ratio of workers' compensation to their productivity. Costs fell at a 0.2 annual rate in the third quarter; the agency had previously estimated costs rose at a 0.5% rate.

Economists polled by The Wall Street Journal had expected the revisions to show a 3.3% jump, at an annual rate, in productivity and a 0.3% annualized gain in unit labor costs.

The drop in labor costs underscores a puzzle in the world's largest economy. Unemployment, at 4.1%, is very low historically, and economic growth pierced 3% in the second and third quarters. A strengthening labor market and economy typically lead to stronger inflation pressures, but various measures show inflation remains below the Federal Reserve's 2% annual target.

Unit labor costs offer clues about whether consumer prices more broadly will rise or fall in coming months, since wage pressures often lead businesses to raise prices for goods and services. Labor costs have fallen 0.7% over the past four quarters.

The Labor Department report on productivity can be accessed at http://bls.gov/lpc.

Write to Josh Mitchell at joshua.mitchell@wsj.com and Sharon Nunn at sharon.nunn@wsj.com.

(END) Dow Jones Newswires

December 06, 2017 08:45 ET (13:45 GMT)