U.S. worker productivity increased strongly in the third quarter, depressing unit labor costs, suggesting wage inflation could remain tame as the economy recovers from the pandemic.
The Labor Department said on Thursday nonfarm productivity, which measures hourly output per worker, increased at a 4.9% annualized rate last quarter. Data for the second quarter was revised up to show productivity increasing at a 10.6% rate instead of a 10.1% pace as previously reported. That was the fastest since the first quarter of 1971.
Economists polled by Reuters had forecast productivity increasing at a 5.6% rate in the third quarter.
Robust productivity growth was flagged by data last week showing the economy expanded at a historic 33.1% annualized rate in the July-September quarter, thanks to more than $3 trillion in government pandemic relief for businesses and workers.
That followed a record 31.4% pace of contraction in the second quarter. Strong productivity could explain the divergence between GDP growth and the labor market.
The economy has recouped two-thirds of output lost during the pandemic, while just over half of the 22.2 million jobs that disappeared have been recovered. This suggests the jobs recovery could take much longer than the 2007-09 Great Recession.
Compared to the third quarter of 2019, productivity increased at a 4.1% rate.
Hours worked rebounded at a 36.8% rate last quarter after plunging at a record 42.9% pace in the second quarter.
Unit labor costs — the price of labor per single unit of output — tumbled at an 8.9% rate in the July-September quarter. Unit labor costs rose at an 8.5% pace in the second quarter. They increased at 2.5% rate from a year ago.