3Q2017 (Final): Headline Productivity Again Shows Significant Gain

A simple summary of the headlines for this release is that there was significant growth of productivity while the labor costs contracted. We believe there is little growth in productivity.

Analyst Opinion of Productivity and Costs

I only look at year-over-year data – the headline compounding distorts the view). I have issues with the way productivity is determined – see the end of this analysis

The market was expecting:

seasonally adjusted quarter-over-quarter at annual rate Consensus Range Consensus Preliminary Actual Final Actual Nonfarm productivity 2.8 % to 3.3 % +2.4 % +3.0 % +3.0 % Unit labor costs -0.3 % to 0.7 % +0.3 % +0.5 % -0.2 %

The headlines annualize quarterly results (Econintersect uses year-over-year change in our analysis). If data is analyzed in year-over-year fashion, non-farm business productivity improved 1.5 % year-over-year, and unit labor costs were DOWN 0.7 % year-over-year. Bottom line: the year-over-year data is saying that productivity growth is significantly outpacing labor costs.

Please note that the following graphs are for a sub-group of the report nonfarm > business.

Seasonally Adjusted Year-over-Year Change in Output of Business Sector

Seasonally Adjusted Year-over-Year Change of Output per Hour for the Business Sector

All this is happening while business sector unit labor costs increased.

Seasonally Adjusted Year-over-Year Rate of Change of Unit Labor Costs

The headlines from the press release:

Nonfarm business sector labor productivity increased 3.0 percent during the third quarter of 2017, the U.S. Bureau of Labor Statistics reported today, as output increased 4.1 percent and hours worked increased 1.1 percent. The productivity increase was the largest since the third quarter of 2014, when output per hour increased 4.4 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the third quarter of 2016 to the third quarter of 2017, productivity increased 1.5 percent, reflecting a 3.0-percent increase in output and a 1.5-percent increase in hours worked.

Unit labor costs in the nonfarm business sector declined 0.2 percent in the third quarter of 2017, as the 3.0-percent increase in productivity was greater than a 2.7-percent increase in hourly compensation. Unit labor costs decreased 0.7 percent over the last four quarters.