The numbers: The productivity of American workers rose by a revised 0.8% annual rate in the third quarter, but the increase was still historically weak and does not bode well for the economy.
The increase was originally put at 0.3% in the government’s preliminary report last month.
Over the past year, productivity has declined by 1.3%, but the data has been distorted since the pandemic and is still being affected, economists say.
Before the 2000s productivity grew about 3% a year, but it’s slowed sharply in the past two decades.
Key details: Output, or the amount of goods and services produced, was somewhat stronger than previously reported. The increase was raised to 3.3% from 2.8%.
Hours worked was revised up a tick to show a 2.5% annual rate of growth.
Unit-labor costs climbed by a smaller 2.4% annual pace in the third quarter, compared to the preliminary 3.5% increase.
Over the past year unit-labor costs have risen a sharp 5.3%, reflecting a tight labor market in which companies have had to pay higher wages to attract and retain employees.
Compensation accelerated at a 3.2% clip in the third quarter. Yet because of high inflation, workers aren’t really benefiting from more pay.
Inflation-adjusted hourly compensation fell at a 2.3% rate in the third quarter.
The Federal Reserve is trying to stamp out high inflation by raising interest rates, but higher borrowing costs are also expected to slow the economy and perhaps even throw it into recession.
Big picture: Productivity has been weak for years and the pandemic didn’t help.
That’s a bad thing for the economy. Rising productivity tends to result in higher business profits, increasing worker pay and a better standard of living.
Slower productivity growth constrains the economy and limits growth.
Economists don’t expect productivity to improve much in the next few years.
Looking ahead: “The report shows “a weaker trend in productivity and an acceleration in labor costs,” said Rubeela Farooqi, chief economist of High Frequency Economics.