U.S. worker productivity grew faster than expected in the third quarter, depressing labor costs and supporting views that the labor market was not a source of inflation.
Nonfarm productivity, which measures hourly output per worker, increased at a 3.6% annualized rate last quarter after advancing by an upwardly revised 2.1% pace in the April-June quarter, the Labor Department’s Bureau of Labor Statistics said on Thursday. Economists polled by Reuters had forecast productivity increasing at a 2.8% rate after a previously reported 1.4% growth pace in the second quarter.
Productivity is volatile on a quarter-on-quarter basis. It grew at a 2.1% rate from a year ago. Economists and policymakers are hoping that an artificial intelligence spending blitz will translate into significant productivity gains.
Unit labor costs — the price of labor per single unit of output — fell at a 0.7% rate last quarter. That was the first decline since the second quarter of 2025 and followed an upwardly revised 1.9% growth pace in the second quarter.
Economists had forecast labor costs rising at a 0.6% pace after growing at a previously reported 1.2% rate. Labor costs grew at a 2.4% rate from a year ago.
They followed on the heels of data last week showing a moderate increase in the Employment Cost Index, the broadest measure of labor costs, in the third quarter.
Policymakers and economists have argued that the jobs market was not a source of inflation. Benign wage inflation gives the Federal Reserve more latitude to focus on rising price pressures stemming from the ongoing US-Israeli war with Iran.
The U.S. central bank last week left its benchmark overnight interest rate in the 3.75%-4.00% range while acknowledging that inflation “remains elevated.” Economists expect the Fed to raise borrowing costs in December.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
