U.S. third-quarter labor costs revised down; productivity weak
WASHINGTON - Growth of U.S. labor costs was not as robust as initially thought in the third quarter, suggesting inflation could remain tame in the near term.
“This is certainly good news for companies’ profit margins which have been under pressure,” said Lydia Boussour, a senior economist at Oxford Economics in New York. “However, slower productivity growth and steady compensation growth will keep upward pressure on unit labor costs going forward.” These developments indicate inflation will probably continue to run below the Federal Reserve’s 2% target.
The central bank’s preferred inflation measure increased 1.6% in the 12 months through October, slowing from 1.7% in September. November data will be published later this month. Nonfarm productivity, which measures hourly output per worker, decreased at a 0.2% rate in the last quarter, the biggest drop since the fourth quarter of 2015. Productivity was previously reported to have declined at a 0.3% pace in the July-September quarter.
Compared with the third quarter of 2018, productivity increased at a 1.5% rate, instead of the previously reported 1.4% pace. Tepid productivity suggests the economy is unlikely to achieve the Trump administration’s goal of 3% annual growth.
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