This new data came through a quarterly Labor Department report reaffirms that the initial estimates for nonfarm business productivity rose at a seasonally adjusted 3.1 percent. Nonfarm business productivity, of course, is a standing measure of goods and services produced per average hour worked. Economists had originally expected the revised figure would prove to be 3.3 percent.
That might not seem like much, but look at the unit labor cost revision. This is a measure of the expense firms pay to compensate workers for this output. These costs grew at a 0.7 percent rate between July and September, which is more than double the initial estimate of a gain of 0.3 percent. However, economists had only expected a growth of 0.2 percent.
Furthermore, unit labor costs grew at a 6.2 percent through the second quarter, which is also nearly double the prior estimate of 3.9 percent.
These higher costs through the spring and summer months are most likely a reflection of higher hourly wages. More importantly, this could help to reassure officials at the Federal Reserve regarding the health of the American economy as they continue to look for the right time to raise interest rates. In fact, some policy makers at the Fed have intimated a plan to raise rates slightly next week.
Indeed, High Frequency Economics chief US economist Jim O’Sullivan notes, “The unit labor cost data add to the case for Fed tightening.”
Of course, all of this new hiring means that unemployment is down, but that also means that hiring is going to probably slow down, which leads to companies having to more aggressively compete for employee retention by increasing wages and benefits. However, it is uncertain how long this growth can continue.
Amherst Pierpont Securities chief economist Stephen Stanley comments, “Firms are not going to pay workers for productivity gains that do not exist. So when productivity growth sags, we need to lower our sights for what constitutes an appropriate pace of wage increases.”