U.S. labor costs grew at a surprisingly strong pace in the third quarter, and were much stronger than previously thought earlier this yearwhich risks fueling inflationary pressures.
Unit labor costs, or what a company pays its employees to produce one unit of output, increased at an annualized rate of 1.9%following a revised upward 2.4% gain in the prior period, data from the Bureau of Labor Statistics showed Thursday. The preliminary reading had shown only a slight gain of 0.4% in the second quarter.
The Bureau of Labor Statistics, BLS, said the release incorporates revised historical data from the past five years that support the statistics. The revisions indicate that Americans have seen much stronger pay increases in recent quarters (particularly earlier in the year) and underscore why consumers have been able to boost the economy at a surprisingly strong pace.
Price-adjusted hourly compensation increased at a 3% pace in the third quarter, marking the seventh consecutive quarter in which pay has outpaced inflation.
Productivity, or hourly output of non-farm business employees, increased at an annualized rate of 2.2% in the July to September period after increasing at a similar pace in the previous quarter.
On a year-over-year basis, productivity rose 2% in the third quarter, the slowest pace in more than a year. Unit labor costs rose 3.4%, the largest increase since the end of 2022.
The Federal Reserve is expected to cut its benchmark rate by a quarter point at the conclusion of its two-day meeting on Thursday afternoon. However, a series of strong economic data in recent weeks, along with the re-election of Donald Trump (whose policies many economists believe will stoke inflation), they may limit the extent to which officials reduce borrowing costs in the coming months.
