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The U.S. Bureau of Labor Statistics reported that preliminary nonfarm business labor productivity for the July-September quarter rose 3.6% from the prior quarter, beating the market forecast of 2.7% and marking the strongest gain since the July-September quarter of last year. Unit labor costs fell 0.7%, defying expectations for a 0.4% increase and dropping into negative territory, a sharp improvement from the 1.9% gain in the April-June quarter. The improvement reflects rising productivity and slower wage growth. Initial jobless claims for the latest week, also released the same day, fell to 189,000, contrary to expectations, matching a level last seen in 1969. Following the releases, the dollar firmed in foreign exchange markets, with the dollar-yen rising to 158.50 yen.
Key Elements
The U.S. Bureau of Labor Statistics reported on the 5th that preliminary nonfarm business labor productivity for the July-September quarter rose 3.6% from the prior quarter. The gain accelerated from 2.1% in the April-June quarter and exceeded the market forecast of 2.7%, marking the strongest increase since the July-September quarter of last year.
Preliminary unit labor costs, released at the same time, fell 0.7% from the prior quarter, reversing from a 1.9% gain in the April-June quarter and dropping into negative territory. The market had expected a 0.4% increase, so the reading defied forecasts for a positive figure. The sharp improvement in productivity and slower wage growth pushed down labor costs per unit of output.
Breaking down output, production increased 3.7%, accelerating from a 2.4% gain in the prior quarter. Meanwhile, hours worked, a measure of labor input, rose just 0.1% after a 0.3% increase. The pattern of producing more output with fewer labor hours contributed to the productivity boost.
| Indicator (Q3 preliminary) | QoQ change | Market forecast | Q2 |
|---|---|---|---|
| Nonfarm business labor productivity | +3.6% | +2.7% | +2.1% |
| Unit labor costs | -0.7% | +0.4% | +1.9% |
| Output | +3.7% | — | +2.4% |
| Hours worked | +0.1% | — | +0.3% |
Note: Figures are preliminary estimates from the U.S. Bureau of Labor Statistics. The April-June quarter figure is revised.
Initial jobless claims for the latest week (through October 31), released the same day by the U.S. Labor Department, totaled 189,000, a decrease of 6,000 from the prior week. The market had expected 196,000, anticipating an increase, so the decline defied forecasts. The level matched a low last seen in mid-July and marked the lowest since 1969. Continuing claims (for the week through October 24) rose to 1,718,000 from 1,695,000 previously, also exceeding the forecast of 1,710,000.
Against the backdrop of a resilient labor market and improving productivity, the dollar was bought in foreign exchange markets. The dollar-yen rose to 158.50 yen. The euro-dollar fell from 1.1226 dollars to 1.1213 dollars, while GBP/USD dropped from 1.3470 dollars to 1.3455 dollars.
The acceleration in productivity growth and the decline in unit labor costs indicate that wage-driven inflationary pressures are being contained. This could give the Federal Reserve more room to cut rates, but the drop in initial jobless claims to a 57-year low signals that labor market tightness persists, and market participants are watching the divergent signals from the two indicators.
