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U.S. Productivity Revised Upward to 2.3% in Third Quarter -- Update

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12/06/2018 | 03:47pm CET

By Eric Morath

WASHINGTON -- U.S. worker productivity rose at a faster pace than initially estimated in the third quarter, but the broader trend remains one of lackluster improvement.

The productivity of nonfarm workers, measured as the output of goods and services for each hour on the job, increased at a 2.3% seasonally adjusted annual rate in the third quarter, the Labor Department said Thursday. That was a slight upward revision from the initial estimate of a 2.2% gain released last month. Still, the third-quarter gain was a deceleration from the 3% advance in the second quarter.

A gauge of compensation costs, unit labor costs, increased at a 0.9% annual rate in the July-to-September period. That was a downward revision from the initial estimate of a 1.2% increase. Unit labor costs fell at a revised 2.8% pace in the second quarter.

Cooling labor costs are the latest signal of easing inflation pressures.

Economists surveyed by The Wall Street Journal had forecast the revised third-quarter figures to show a 2.2% increase in productivity from the prior quarter, and labor costs to increase at a 1.1% rate.

Thursday's report was issued a day later than initially scheduled. The federal government was closed Wednesday due to a national day of mourning for former President George H.W. Bush.

From a year earlier, productivity rose at a 1.3% rate in the third quarter. Year-over-year productivity gains have held below 2% since late 2010, the longest such streak on records back to 1948.

Economists forecast the pace of economic output gains to ease in the fourth quarter, while hiring was strong in October, which suggests worker-productivity improvements could ease in the final months of the year.

That's a potential challenge for workers and the broader economy. Over the longer run, productivity growth is a predictor of wage growth. If workers can't produce more per hour, it can make it difficult for businesses to justify pay increases. At the same time, businesses' willingness to spend on efficiency-improving technology has been held in check during much of the expansion.

And with a smaller pool of workers available in a tight labor market, productivity would likely need to accelerate in 2019 to meet the Trump administration's goal for a sustained 3% economic growth rate.

Thursday's report showed productivity gains in the manufacturing sector rose at an upwardly revised 1% annual pace from the previous estimate of up 0.5%.

Unit labor costs also rose 0.9% in the third quarter from a year earlier. On a year-over-year basis those costs have been trending down over the past year -- another sign of easing inflation pressures. If costs are in check, it is easier for businesses to maintain their profit margins without having to raise prices.

The falling cost of oil and strong U.S. dollar making foreign goods relatively less expensive for domestic consumers are also putting downward pressure on price increases.

Write to Eric Morath at eric.morath@wsj.com

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