U.S. Worker Productivity Jumps in Third Quarter

By Eric Morath and Sharon NunnFeaturesDow Jones Newswires

U.S. worker productivity improved in the third quarter at the best rate in three years.

Nonfarm business-sector productivity, measured as the goods and services produced per hour worked, increased at a 3.0% seasonally adjusted annual rate in the third quarter, up from a 1.5% growth rate for the second quarter of 2017, the Labor Department said Thursday. Economists surveyed by The Wall Street Journal had expected a 2.8% growth rate for the latest quarter.

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Output rose at a 3.8% rate from the second quarter, while hours worked were up at a 0.8% pace.

Compared with a year earlier, productivity was up 1.5% in the third quarter, reflecting that output rose modestly faster than hours worked.

Productivity declined last quarter at manufacturing firms, but that was well more than offset by strong gains at other businesses.

Unit labor costs at nonfarm businesses rose at a 0.5% rate in the third quarter, the Labor Department said. Economists had expected a 0.6% growth pace. Unit labor costs are the ratio of hourly pay to productivity. From a year earlier, unit labor costs fell 0.1%.

Tempered labor-cost pressures is consistent with soft wage growth and consumer-price inflation in recent years.

Productivity data tend to be volatile from quarter to quarter, but improvements have been sluggish since the recession. Annual growth averaged 1.2% from 2007 to 2016, well below the long-term average of 2.1%.

Productivity has increased for six straight quarters, and the most recent gain was the best since the third quarter of 2014.

Better productivity gains could point to an improving wage trend. Average hourly earnings increased 2.9% from a year earlier in September, matching the best gain since the recession ended.

Weak productivity gains may have made it difficult for businesses to justify larger pay increases for workers. If individual workers can't produce more, firms may opt to add more employees rather than give current staff raises.

"Productivity growth has been quite weak in recent years," Federal Reserve Chairwoman Janet Yellen said in a speech in late September. "And empirical analysis suggests that it is has been holding down aggregate growth in labor compensation independent of labor utilization in recent years."

The wage figure and the productivity data could be skewed by hurricanes that struck the U.S. in recent months, though the Labor Department did not report a specific effect on productivity. Other government reports showed the storms caused payrolls to decrease, while economic output maintained the strongest rates since the recession ended. That's a recipe for a short-lived bump in productivity because many of the storm-related job losses are expected to be temporary.

President Donald Trump has targeted economic growth of at least a 3% annually. That pace has been achieved the past two quarters. For it to be maintained during period of shrinking supply of unemployed Americans, worker productivity will need to continue to improve.

The Labor Department's report on labor productivity and costs can be accessed at: https://www.bls.gov/news.release/prod2.nr0.htm

Write to Eric Morath at eric.morath@wsj.com and Sharon Nunn at sharon.nunn@wsj.com.

(END) Dow Jones Newswires

November 02, 2017 08:45 ET (12:45 GMT)