How much did productivity exceed expectations?

  • The initial estimate showed US third-quarter nonfarm labor productivity growing at an annualized quarter-on-quarter rate of 3.6%, above Goldman Sachs’ forecast of 2.9% and the market median forecast of 2.7%, and faster than the revised second-quarter growth rate of 2.1%.
  • Year over year, third-quarter productivity growth was 2.1%, down 0.2 percentage points from the second quarter, showing that quarter-on-quarter acceleration in the current quarter and a slowdown in year-over-year growth occurred at the same time.

How did productivity gains affect labor costs?

  • Unit labor costs are the ratio of labor compensation to output. In the third quarter, this measure fell at an annualized quarter-on-quarter rate of 0.7%, while Goldman Sachs and the market had respectively expected growth of 0.6% and 0.4%; its year-over-year growth slowed to 2.4%, down 0.2 percentage points.
  • Compensation growth also slowed: hourly compensation grew at an annualized quarter-on-quarter rate of 2.9% in the third quarter, below 4.0% in the second quarter. Goldman Sachs’ wage tracker rose 3.3% year over year, below 3.7% in the second quarter and also below the growth rate the bank estimates is consistent with inflation of 2%.

What is the longer-term productivity trend?

  • Since the fourth quarter of 2019, labor productivity has grown at an average annual rate of 2.2%, above the average growth rate of 1.6% during the previous economic cycle. Goldman Sachs expects average annual productivity growth of about 2.3% in 2026–2030.
  • This release revised productivity for 2021–2026 based on the annual update to the national accounts: the average quarterly annualized quarter-on-quarter growth rate for that period was revised up by 0.1 percentage points per quarter.

What signal did the unemployment-benefit data send?

  • For the week ending 31 October, initial jobless claims fell by 6000 to 189 thousand people, slightly below the market median forecast of 196 thousand; the four-week moving average fell to 195 thousand, the lowest in the history of the series.
  • Continuing claims moved in the opposite direction: for the week ending 24 October, the number of people receiving regular unemployment benefits increased by 23 thousand to 1.718 million, slightly above the market median forecast of 1.71 million.