Business productivity rose 1.9% in the third quarter

Nonfarm business productivity rose an annualized 1.9 percent in the third quarter after declining 1.8 percent in the prior quarter. Unit labor costs edged down an annualized 0.1 percent in the third quarter, following a rise of 1.3 percent in the second quarter.

The consensus had forecast a 1.7 percent boost in productivity. The improvement in productivity primarily reflected a 3.0 percent rebound in nonfarm business output after a 1.6 percent rise in the second quarter. Also, hours worked slowed to a 1.1 percent increase from 3.5 percent in the second quarter. Compensation rose an annualized 1.8 percent after a 0.6 percent decline in the prior quarter.

Year-on-year, productivity was up 2.5 percent in the third quarter-down from 3.7 percent in the prior quarter. Costs were below analysts' expectation for a 0.2 percent upward nudge in labor costs. Year-ago unit labor costs slipped to an annualized minus 1.9 percent from minus 2.7 percent in the second quarter.

The profits picture is good for at least the near term as productivity rebounded in the third quarter and unit labor costs slipped.

The favorable productivity and cost numbers were largely due to an improvement in output growth. Compensation actually rose modestly. So, businesses need to see a boost in production to see this pattern continue. But for now, the overall news is good. However, today's numbers are tempered a little by a bump up in initial jobless claims. But equity markets are still enjoying the spiked punch from the Fed's balance sheet announcement yesterday.

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