Revised Third Quarter 2019 Productivity and Unit Labor Costs

Productivity contracted in the third quarter of this year according to revised data from Bureau of Labor Statistics (BLS).  Their measure of output per labor hour fell 0.2 percent from July through September 2019 (originally down 0.3 percent).  Despite the upgrade, this was a disappointment versus the prior period’s count of 2.5 percent.  Additionally, unit labor costs popped less than first counted, adding another 2.5 percent (originally 3.6 percent) after increasing 2.4 percent from April through June.

Two factors go into productivity: output and labor hours.  According to the BLS, our nation’s output increased an upwardly revised 2.3 percent in the period (originally 2.1 percent), accelerating from 1.9 percent in the second quarter.  This measure is a proxy similar to GDP, and it is moving in a similar pattern.  The other component to productivity, labor hours, increased faster than output, rising 2.5 percent (upwardly revised from 2.4 percent).

Also included in the report is data on unit labor costs.  This measures the impact of labor on the overall costs of goods and services.  Unit labor costs are calculated using a ratio of two components: hourly compensation and productivity.  Wages rose 2.3 percent in the period, but the workers were 0.2 percent less productive each hour.  Combined, these factors caused the unit labor costs to rise 2.5 percent.

This indicator weakened some in the period.  However, its shortcoming is minor thus far and was upwardly revised after more complete data were collected.  Lots of things seemed to slow in the third quarter, so it is hardly shocking to see this setback.  Atlas does not anticipate this current weakness to develop into something more concerning as many of the forward-looking indicators have yet to deteriorate far enough to suggest otherwise.