Ahead of the Bell: Productivity, labor costs

WASHINGTON - Wall Street expects productivity, the crucial ingredient for rising living standards, showed sharply lower growth in the third quarter while labor costs surged amid the shrinking economy.

Productivity is expected to have edged up at an annual rate of 0.8 percent in the July-September quarter, while unit labor costs grew by 2.8 percent, according to the consensus of Wall Street economists surveyed by Thomson Reuters. The Labor Department is scheduled to release the data Thursday at 8:30 a.m. EST.

A third-quarter slowdown in productivity would follow a jump of 4.3 percent in the second quarter, while growing labor costs per unit of output would come after a 0.5 percent drop in that category in the prior quarter.

The Federal Reserve closely monitors productivity and labor costs to see whether inflation is becoming a problem. While rising wages and benefits are good for workers, if those gains outstrip increases in productivity it can create serious inflation problems as businesses are forced to boost the cost of their products to cover the higher wage demands.

If workers are more productive, though, businesses are able to increase their pay and cover the costs with the increased output of goods and services.

The second-quarter productivity and labor costs results reflected a big upward revision the government made to overall growth for the period — pushing the gross domestic product to a rate of 3.3 percent, revised from an initial figure of 1.9 percent.

GDP, which shrank by 0.3 percent in the third quarter, represents the economy's total output of goods and services. A higher GDP figure, if the hours of work remain essentially unchanged, means a much better performance for productivity.

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