US productivity jumps in Q3; NY manufacturing claws back

One gallon bottles of glass cleaner are filled and packaged at the S & S Soap Co. manufacturing facility in the Bronx borough of New York.
Ron Antonelli | Bloomberg | Getty Images

U.S. nonfarm productivity rose the most in nearly four years in the third quarter but a drop in unit labor costs underlined a lack of inflation pressure, bolstering arguments for the U.S. Federal Reserve to maintain its massive monetary stimulus.

Productivity rose at a 3.0 percent annual rate after increasing at a 1.8 percent pace in the second quarter, the Labor Department said on Monday, driven by a 4.7 percent rise in output.

The data revised up an earlier estimate and was slightly above the 2.8 percent increase analysts forecast in a Reuters poll. It was the largest rise since the fourth quarter of 2009.

Productivity, which measures hourly output per worker, was 0.3 percent higher compared to the same period last year.

Unit labor costs - a gauge of the labor-related cost for any given unit of output - fell at a 1.4 percent rate in the third quarter, roughly double the originally estimated fall, underscoring the lack of wage-related inflation pressures in the economy. Unit labor costs had risen at a 2.0 percent pace in the second quarter.

The Federal Reserve is likely to consider subdued inflation when it meets this week. Over the last year, inflation has been well below the U.S. central bank's 2 percent target, which has led some analysts to expect it will be slow about winding down its bond-buying program.

Economists polled by Reuters had expected unit labor costs to fall at a 1.3 percent pace in the July-September quarter. Labor costs were up 2.1 percent from a year ago.

Manufacturing rises, but by less than expected

Separately, New York state's manufacturing sector rebounded slightly in December from its weakest level in six months while the region's business outlook stayed relatively upbeat, a report from the New York Federal Reserve.

The New York Fed's "Empire State" general business conditions index edged back into positive territory at 0.98 from minus 2.21 in November. It fell short of the 4.75 reading forecast among economists polled by Reuters.

A reading above zero indicates expansion.

The regional Fed's indicator signaled some improvement in current business activity but labor conditions remained weak.

On the other hand, the New York Fed said its forward gauges stayed "fairly optimistic."

The new orders index was less negative at minus 3.54 compared with minus 5.53 in November, while the shipment component turned positive at 7.66 from minus 0.53 last month.

Labor market conditions remained tepid, with the index for the number of employees stuck at zero for a second straight month. The average employee workweek index dropped to minus 10.84 from minus 5.26 in November.

The report's outlook indicators pulled back from November's levels but held near their recent peaks. The index of six-month business conditions retreated to 35.72 from 37.51.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.