U.S. Labor Productivity Jumps 3.2% In Q4, More Than Expected

The Labor Department released a report on Thursday showing U.S. labor productivity surged by more than expected in the fourth quarter of 2023.

The report said labor productivity shot up by 3.2 percent in the fourth quarter after soaring by a downwardly revised 4.9 percent in the third quarter.

Economists had expected labor productivity to jump by 2.5 percent compared to the 5.2 percent spike that had been reported for the previous quarter.

The sharp increase in labor productivity, a measure of output per hour, came as output surged by 3.7 percent compared to a 0.4 percent uptick in hours worked.

Meanwhile, the Labor Department said unit labor costs rose by 0.5 percent in the fourth quarter after falling by 1.1 percent in the third quarter.

Unit labor costs were expected to increase by 1.7 percent compared to the 1.2 percent slump that had been reported for the previous quarter.

“Growth in unit labor costs was more subdued than expected following a downward blip in Q3, another piece of evidence that wage pressures are easing,” said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

She added, “While Fed Chair Powell made clear yesterday that a rate cut is probably off the table for March, we expect the accumulating evidence of moderating wage pressures and inflation more broadly will lead to a rate cut in May.”

The modest increase in unit labor costs came as a 3.7 percent jump in hourly compensation was largely offset by the spike in productivity.

Real hourly compensation, which takes changes in consumer prices into account, climbed by 0.9 percent in the fourth quarter after inching up by 0.2 percent in the third quarter.

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