U.S. productivity rose 0.3% in the third quarter.
The numbers: The increase in productivity of American firms and workers under the government’s first do-over of its original report. Economists polled by MarketWatch had expected productivity to be reset at 3.3%.
The increase in output — goods and services produced — was revised to 4.1% from 3.8%. And the increase in hours worked was raised to 1.1% from 0.8%.
Hourly compensation rose 2.7% instead of 3.5%. Unit-labor costs were revised down to show a 0.2% decline from an initial 0.5% increase.
What happened: The increase in third-quarter productivity was the strongest in three years, but part of the gain likely stemmed from how a trio of major hurricanes in the fall distorted the government’s calculations. Productivity has been unusually weak during the current expansion that began in mid-2009.
More surprisingly, was the decline in labor costs. Unit-labor costs — how much it costs to make each product — have fallen 0.7% over the past year, according to government data. That doesn’t seem to square with growing evidence of labor shortages that have forced some firms to offer higher wages or benefits.
The big picture: The low rate of productivity growth has been a major puzzle to economists, but some hope a pending cut in corporate tax rates and other pro-business measures will spur investment.
Growth in productivity is closely associated with more investment in plants, equipment, training and other processes that help workers do their jobs better. But that kind of business spending has been tepid for years.
Low productivity has been blamed for the slow rise in worker wages and an economic recovery that by many measures is the weakest in modern times. The U.S. has failed to reach 3% growth since 2005, the longest streak in the post-World War Two era.
Productivity rose by an average of just 1.2% from 2007 to 2016, below the average 2.6% gain from 2000 to 2007.
What they are saying?: “In short, productivity continues to show improvement recently, but more headline-grabbing perhaps is the weakness in unit labor costs,” wrote Jim O’Sullivan, chief U.S. economist of High Frequency Economics, in a note. “We believe this weakness is misleading.”
Market reaction: Muted. The Dow Jones Industrial Average and the S&P 500 index fell slightly in Wednesday trades.